Daily Market Update

India’s Futile ‘War On Gold’ Ends – Demand To Rise

Today’s AM fix was USD 1,294.50, EUR 945.93 and GBP 767.02 per ounce.
Yesterday’s AM fix was USD 1,292.00, EUR 942.65 and GBP 764.81 per ounce.

Gold fell $3.20 or 0.25% yesterday to $1,291.50/oz. Silver rose $0.02 or 0.1% to $19.40/oz.

Gold is marginally higher today at $1,294.40/oz but remains in lock down in an unusually tight range between $1,284/oz and $1,306/oz this week. Gold in Singapore again traded around the $1,292/oz level prior to slight gains in London which led to gold over $1,295/oz.

Gold in U.S. Dollars, Daily, January – May – (Thomson Reuters)

India Gold Demand To Rise As Central Bank Eases Tough  Import Rules
India’s central bank, the Reserve Bank of India (RBI), eased tough gold import rules late last night,by allowing seven more private agencies to ship and import gold bullion. Industry officials and gold analysts say the easing of restrictions will increase supplies, reduce premiums and lead to increased demand in the peak wedding season.

The move allows "star trading houses", private jewellery exporters which had been barred from importing gold since July 2013, to resume imports, with immediate effect. India raised the gold import duty last year to a large 10% from 4% and also mandated that 20% of imported gold be exported, known as the 80:20 rule.

There are no changes to the more stringent 80/20 rule as of yet, but sources have told Reuters that the Reserve Bank of India and finance ministry officials will recommend that the new government relax strict gold import rules to head off a surge in illegal buying and the continuing wave of gold smuggling into India.

The easing of the import rules is bullish for gold bullion and the gold sector. Shares of jewellery companies surged after the RBI allowed banks to provide gold loans to the sector.

The moves by the RBI, is likely to increase demand for gold. Curiously, gold prices saw little gains after the announcement.

Although the two steps alone are not expected to impact India’s current account deficit, they could reinforce expectations that RBI and finance ministry officials will soon move towards removing some of those curbs.

HSBC commenting on India’s move to allow more firms to import gold, said that "the announcement is a sign that the RBI is slowly starting to address the onerous restrictions put in place last year on the gold trade and may raise optimism for an eventual roll back of the bullion import taxes."

Russian Central Bank Gold Reserves, Millions of Troy Ounces  – (Gold Charts R Us)

Russia’s significant 900,000 ounce or 28 tonne gold purchase worth over $1 billion in April continues to be digested by the market. Ordinarily we have seen gold react positively to surprise large central bank purchases. Another bullish development has not led to rising gold prices. Gold prices appear tethered to the $1,300/oz level.

Russia China Historic Gas Deal
Another important geopolitical development yesterday was China and Russia signing a $400 billion gas supply deal involving payments in the yuan and ruble.

The deal secures the world’s top energy user a major source of cleaner fuel. It opens up a new market for Russia as it gives itself options and the ability to cut off dependent European countries should the Ukraine crisis escalate and further sanctions be imposed on Russia.

The deal is important from a monetary perspective as Russia and China are planning to increase the volume of direct payments in mutual trade in their national currencies, according to a joint statement.

Chinese President Xi Jinping with Russian President Vladimir Putin after deal

It has significant ramifications for the dollar as global reserve currency. The era of the dollar as the sole global reserve currency is gradually coming to a close – see Currency Wars: Bye, Bye Petrodollar – Buy, Buy Gold.   We will explore the Russian Chinese deal and its important geopolitical ramifications  in more detail tomorrow.

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Mark O'Byrne
Executive Director


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