Gold Bullion Flows 'Dead' Ahead of India Budget, Price Rallies from 2nd Dip Below $1200

Submitted by Adrian Ash on Wed, 02/17/2016 - 14:15
GOLD BULLION dipped below $1200 per ounce for the second day running in Asian trade Wednesday, with dealers reporting weak demand from major consumer nation India ahead of this month's government Budget, before rallying to $1207 by lunchtime in London.
 
Western stock markets jumped 2%, crude oil rallied another 3%, and the US Dollar touched near-2 week highs on the currency market.
 
With China's busiest single period of household gold demand now finished with last week's Lunar New Year holidays, bullion today rallied 1.0% on the Shanghai Gold Exchange as the Chinese Yuan retreated further from Monday's surge – its fastest 1-day gain since 2005 according to Bloomberg data, spurred by People’s Bank of China chief Zhou Xiaochuan blaming "foreign speculators [for] volatility" in the currency.
 
A survey of 5,000 adults in the UK by Lloyds Bank's private banking division today said pessimism on share investing was the worst in 3 years last week, while gold became the second "favorite" investment after real estate.
 
Tuesday saw the number of shares outstanding in the giant SPDR Gold Trust (NYSEArca:GLD) close unchanged from before the President's Day holiday weekend.
 
Hedge-fund billionaire John Paulson was one of 6 out of the 15 largest GLD shareholders to cut his clients' position in the ETF during the last 3 months of 2015, when gold prices fell to new 6-year lows.
 
Yesterday's biggest single change in Comex gold options betting for March was a rise in the number of $1180 puts, according to the Reuters news and data agency, giving speculators the change to profit if prices fall below that level before the contracts expire a week today.
 
Bearish puts, however, still accounted for just 15% of the 5 most widely held March gold options, and just 21% of the April contract's top five bets.
 
"Physical flows are dead quiet," said one wholesale bullion trading desk this morning.
 
"Forwards have barely moved on the price jump. No-one's shipping to India in case the government cuts import duty in the Budget."
 
Forward rates are the incentive offered by lenders to would-be borrowers of gold bullion in London's wholesale market, falling or rising when immediate supply becomes tighter or easier.
 
India's finance minister Arun Jaitley will present the BJP government's 2016 Budget on Monday 29 February.
 
Amid a deluge of newspaper, business and analyst opinions calling for special treatment or new programs to boost different parts of the economy, jewelry trade associations the IBJA and GJF have both formally asked for a cut to gold import duty rates.
 
Currently at 10%, that rate was first imposed by the then-Congress Party government in 2013 to try and stem record-high bullion inflows when precious metal prices crashed, spurring huge consumer demand and pushing the country's balance of payments deficit with the rest of the world to a record 4.8% of GDP.
 
India's retail gold prices – typically at a premium to international wholesale quotes – sank last week to a discount worth $25 per ounce, the Reuters news-wire says, with some dealers reporting "no buyers" on a $40 discount to Thursday's sudden 12-month high of $1260 for gold priced in Dollars.
 
Illegal inflows of gold to India – the world's heaviest consumer nation – continue meantime, with "police conducting raids on only 10% of [gold] smugglers and 90 out of every 100 smugglers...walking out from airports and railway stations without any check," The Hindu newspaper today quotes Commissioner S.Khader Rahman of India's Customs Preventive unit.
 
Unlike the GJF, the IBJA's executive team has said it backs the Finance Ministry's move to make personal tax account declarations mandatory on gold and jewelry purchases below 200,000 Rupees, equal to just less than US$3,000 – and down from the previous PAN gold declaration level of Rs 500,000, equal to some US$7,500.

Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

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