Daily Market Update

Gold Surges Over 90,000 Rupees Per Ounce As Rupee Falls 27% In Less Than 2 Months

Friday’s AM fix was USD 1,374.50, EUR 1,028.59 and GBP 880.30 per ounce.

Today is the Summer Bank Holiday in the UK.

Gold and silver surged higher Friday after trading sideways in consolidation mode Monday to Thursday. Gold rose 1.6% and silver surged 4% on Friday. 

For the week, gold rose $21.70 or 1.7% to $1,396.30/oz and silver rose $0.92 or 3.45% to $23.98/oz.

Platinum was 1% higher to $1,541/oz for the week, while palladium fell 1.6% to $750/oz.



Gold in Indian Rupees – 5 Years (Bloomberg)

Gold spiked higher on the open in Asia but prices were capped with aggressive and determined selling at the $1,405/oz level. Gold in India remains well bid and premiums have risen to $35 per ounce over London spot prices due to a lack of supply and very robust demand.

The wisdom of Indian housewives’ belief in gold as a store of value is being seen after the rupee’s rapid depreciation in recent weeks. Gold has risen or rather the rupee has fallen to near record lows against gold (see chart below) at 90,000 rupees per ounce.

The rupee has fallen from 70,800/oz on June 28th to nearly 90,000/oz this morning or a fall of 27% in less than two months. Gold’s record rupee high was 97,129/oz on November 26, 2012 and gold is just 8% below reaching new record highs against the rupee.

Bloomberg’s Jeanette Rodrigues and Anoop Agrawal wrote overnight how money managers predict the rupee’s slump to an all-time low against the dollar and resurgent inflation will lead to robust demand for gold bullion as a store of value.

Unprecedented outflows from Indian gold funds are set to reverse as Indians allocate funds to gold again due to currency depreciation and the risk of inflation. Kotak Mahindra Asset Management Co. and Reliance Capital Asset Management Ltd. expect investors to boost holdings after withdrawing a record 3.1 billion rupees ($48 million) in June and July. 

Bullion prices in the world’s biggest gold saving nation have surged 24% since the end of June, according to data compiled by Bloomberg, while indexes measuring Indian bonds fell 6.4% and stocks dropped 4%.

“Gold is a natural hedge on your portfolio,” Lakshmi Iyer, a Mumbai-based fund manager at Kotak Mahindra Asset, which manages 377 billion rupees, said in an August 21 telephone interview. 

“It’s the last man standing.”

Bullion has rallied at almost twice the pace of global prices this quarter as the rupee plunged, threatening to fuel inflation in a nation that imports 80% of its oil.

 Gold Prices/ Fixes/ Rates / Volumes – (Bloomberg)

“Gold helps portfolio diversification, especially in an environment of rupee depreciation,” Hiren Chandaria, a Mumbai-based fund manager at Reliance Capital Asset., which oversees $15.6 billion, said in an August 16 interview. “We are likely to see a good rebound in demand before Diwali,” he said, referring to the Hindu festival that falls in November this year.

Inflation Hedge

Indian investors will be attracted to gold as long as inflation stays above 7% and should allocate 5% to 15% of their portfolio to the metal, Kotak Mahindra Asset’s Iyer said. 

Consumer prices rose 9.64% in July, official data show, while State Bank of India, the nation’s largest lender, pays just 6.5% on three-month deposits.

Withdrawals from exchange-traded funds in gold were 1.07 billion rupees in July, 48 percent lower than the 2.06 billion rupees outflow in June, according to data from the Association of Mutual Funds in India.

Stronger gold demand amid the rout in local debt and equity markets thwarts Finance Minister Palaniappan Chidambaram’s efforts to channel savings locked in bullion into financial instruments. 

Policy makers have raised import tariffs three times this year to curtail shipments that account for about 80% of the nation’s current-account deficit.

The shortfall in the broadest measure of trade widened to a record 4.8% of gross domestic product in the year ended March 31, official data show. The Reserve Bank of India considers the gap the biggest risk to Asia’s third-largest economy, which is growing at the slowest pace in a decade.

The rupee has lost 7.4% this quarter, the second-worst performance in Asia. The cost to insure the notes of State Bank of India, a proxy for the nation, against non-payment for five years climbed 110 basis points in August to 369, according to data provider CMA.

 Gold in Euros – (Bloomberg)

Import duties on gold and platinum were increased to 10% on August 13 from 8%, while the levy on silver was boosted to 10% from 6%. India plans to limit bullion imports to 850 metric tons in the year through March 2014 to narrow the deficit to $70 billion from a record $87.8 billion in the prior period.

Smuggling has risen as the tariff increases fail to supress demand for the metal before upcoming festivals and the wedding season that runs through the end of the year. The World Gold Council estimates demand will rise to as much as 1,000 metric tons this year from 868 tons in 2012.

Illegal Shipments

Customs agents at Mumbai airport seized bullion worth 93 million rupees from April to June, almost as much as they nabbed in the whole of last year, Rishi Yadav, assistant commissioner at the customs department’s Air Intelligence Unit, said in a July 15 interview. Illegal shipments were rampant until the turn of the century because of high duties, which were slashed in 2001.

“I grew up in an India where there were high tariffs, and there’s no doubt that high demand will find its supply,” Arvind Sethi, chief executive officer at Tata Asset Management Ltd. in Mumbai, said in an August 14 interview. 

“India has always had very strong demand for physical gold, in the form of jewelry and as an investment, because real yields have been low.”

Wholesale prices rose 5.79 percent in July from 4.86 percent the previous month, official data showed Aug. 14. The inflation-adjusted yield on 10-year sovereign notes has fallen 15 basis points, or 0.15 percentage point, since June 30, according to data compiled by Bloomberg. The yield on the benchmark note rose two basis points to 8.30 percent today.

‘Store of Value’

The Indian government’s measures to damp gold demand are comparable to trying to hold sand in one’s fist, according to Martin Rapaport, chairman of the Rapaport Group, which operates a diamond-pricing service.

“The more the government squeezes Indians to force them into rupees, the more the currency will depreciate and they will go into other things,” Rapaport said in an August 14 interview in Mumbai. 

“Indians want to maintain a store of value, so they go to gold.”

‘Gold is the last man standing as rupee fuels inflation’ was not published on Bloomberg.com but the story was published on Live Mint

 What is happening in India is a prelude to what will be seen in other economies in the coming years as currencies depreciate.


Gold eases after jumping over $1,400 – Reuters

Gold Swings as Investors Weigh Stimulus After Home Sales Drop – Bloomberg

Indians chasing gold higher despite domestic prices equal to $1,800 – Mining.com

COMEX Gold Inventories Decline To Just $9.79 Billion – MarketWatch


Dark Arts of the Bankers – David McWilliams

13 Reasons Why Gold Will Hit $5000/oz – GoldSeek

Billionaire Sprott Says World To Witness A Frightening Collapse – King World News

France: On the Edge of the Periphery – Mauldin Economics

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Mark O'Byrne
Executive Director


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