Gold News

Gold Prices Drop 1.5% for Week as India Kills 80:20 Import Rule, Premiums Sink Ahead of Sunday's Swiss Central-Bank Gold Vote

GOLD PRICES fell in London trade Friday, ending the week 1.5% lower against the US Dollar ahead of the Swiss referendum result on central-bank gold reserves due this Sunday.
 
The Reserve Bank of India meantime confirmed media reports that it has – with immediate effect – withdrawn the 80:20 rule against gold imports, driving domestic gold prices sharply lower according to Mumbai dealers.
 
Brent crude oil was on track Friday for a 10% weekly drop after the Opec cartel agreed yesteday against lower output ceilings for 2015.
 
Silver tracked and extended the drop in gold prices, losing almost 4% for the week to drop hard through $16 per ounce.
 
World stock markets edged higher in thin trade, with New York re-opening for only half-a-day after Thanksgiving.
 
"We believe the move [ending the 80:20] rule will do away with the distortions and calm the market," an RBI official told press today in India – the world's No.1 gold consumer nation until last year.
 
Imposed to such confusion in July 2013 that gold exports to India fell from record levels to zero that month, the 80:20 rule required importers to have exported 20% of their last shipment before customs would release a new delivery.
 
To get around the rule, press reports have claimed, importers used fake gold jewelry in their outbound shipments, and also used the same metal for re-export time and again in a scam known as "round-tripping".
 
The 80:20 rule has also been blamed for the surge in gold smuggling to India, with profits so high that  couriers are reportedly paid the same 10% by value which Indian customs officials also levy as duty.
 
Praising the BJP government of Narendra Modi elected this May on a platform of economic liberalism, reform and anti-corruption, "People had given up on India," said McKinsey consulting's CEO Dominic Barton to the Economic Times on Wednesday.
 
"They felt India is too complicated and it was difficult to get anything done. [But now] it has gone right back up, people are interested. Obviously they are going to want to see action but I think the feeling is they wil."
 
Global gold prices fell as the Indian 80:20 news broke Friday however, with Indian dealers also reporting a sharp drop in domestic premiums over and above London quotes – a marker of local supplies.
 
Looking ahead to Monday morning's Asian opening, Standard Bank's daily commodities note says "The knee-jerk reaction to a Swiss yes vote" on the gold initiative – currently dismissed by opinion polls – "particularly when consensus is for a no, and in a jumpy market like gold, would likely see a pretty significant rally."
 
Standard Bank's analysts foresee the gold price moving "perhaps $15-20/oz in a straight line and pushing on from there before sanity returns" in early trade. But only on a clear "Yes" vote forcing the Swiss National Bank to hold 20% of its assets in gold, vaulting all that metal domestically and never selling again in future.
 
That third clause, widely dismissed as "absurd" by other professional analysts, would represent "a gold ball and chain," says Standard Bank's note, "that ties up cash in an asset that they can’t ever sell and therefore arguably has no value."
 
Platinum and palladium traders meantime saw the last London Fixes today, with the fixing members' current telephone auction – running since 1989 – replaced from Monday by an electronic platform operated by the London Metals Exchange.
 
Instead of trade body the London Platinum & Palladium Market, gold and silver body the London Bullion Market Association told Bloomberg on Friday it will take ownership of the new daily price data.

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum 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 he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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