Gold Monthly Update: January 2013

India Infoline News Service | Mumbai |

Gold prices could resume the northward journey, as the dust has settled down temporarily post US fiscal cliff deal

Gold prices ended the year with YTD gains of 7% in US dollar terms and 13% in Indian rupee terms. Over the past two months, ambiguity over US fiscal cliff has led to extreme volatility in the complex. Selling pressure intensified during second half of December, will gold prices going as low as US$1,636/ounce. However, the fact that gold prices managed to sustain above the crucial support level of US$1,630/ounce provided a lot of courage for the bulls.

In regard with the US fiscal cliff front, the relation between US fiscal scenario and gold prices has not been consistent. Of late, gold prices have rallied when the US legislators were making progress on the talks, but contrastingly witnessed sharp decline when the negotiations faced substantial hindrances. However at this juncture, gold prices have resumed the uptrend, wherein US legislators have managed an agreement on the fiscal cliff deal. In this regard, the House of Representatives and Senate have struck a deal to avoid the fiscal cliff. The deal consists of keeping most of the existing tax cuts intact except on individuals making over US$400,000 or households making US$450,000 per annum, much higher than Democrat’s initial yardstick of US$250,000. The bill would raise US$620bn over ten years, a meager sum considering the fact that cumulative projected deficits over this period are expected to total between US$10-US$15 trillion.

Nothing much is done on the spending cuts, which have been delayed for two months, as it seems that the Senate wants to buy some time on this. However after two months, the onus lies on the US congress for taking decisive measures on spending cuts and extensions of debt ceiling. Effectively, gold prices are moving higher now towards US$1,700/ounce, reacting to the fact that that the US legislators have fallen short of providing a substantial resolution to the fiscal disorder. The fact that White House has left so many issues unresolved will provide a measure of support for gold.

Gold prices could resume the northward journey, as the dust has settled down temporarily post US fiscal cliff deal. Easy monetary policy conditions are going to remain intact across the globe, with US Federal Reserve stating that it will keep interest rates extremely low until the unemployment rate falls to 6.5%. The apex body has also ascertained that it does not envisage US employment markets restoring to normalcy before 2015. Herein the food for thought lies that low interest rates and lenient monetary policy always enact as a bullish catalyst for gold prices in the long run. In addition, long term accumulation of the yellow metal by various central banks should also pose as a prop for the prices.

Gold Snapshot
  Dec-12 Nov-12 mom
(%)
Dec-11 yoy
(%)
YTD
(%)
Avg'12 Avg'11
*Price (US$/ounce)
Spot Gold 1,656 1,726 (4) 1,564 6 7 1,669 1,573
COMEX Gold 1,656 1,727 (4) 1,567 6 7 1,669 1,572
MCX Gold 30,697 31,579 (3) 27,441 12 13 29,699 23,995
Currency                
US Dollar Index 80 80 (1) 80 (1) (1) 81 77
Spot INR 54.8 54.8 (0) 53.1 3 3 53.5 46.7
Source: Bloomberg, India Infoline Research 
* Prices as on 3rd January, 2013

Gold Statistics
  Dec-12 Nov-12 mom (%) Dec-11 yoy (%) YTD (%) Avg'12 Avg'11
Price* (US$/ounce)
Spot Gold 1,656 1,726 (4) 1,564 6 7 1,669 1,573
COMEX Gold 1,656 1,727 (4) 1,567 6 7 1,669 1,572
MCX Gold 30,697 31,579 (3) 27,441 12 13 29,699 23,995
                 
(mn ounces) Dec-12 Nov-12 mom (%) Dec-11 yoy (%) YTD (%) Avg'12 Avg'11
ETF Holdings 85 84 0 76 12 12 79 71
                 
(mn ounces) Oct-12 Sep-12 mom (%) Oct-11 yoy (%) YTD (%) Avg'12 Avg'11
IMF Reserves 1,015 1,014 0.2 1,001 1.5 1 1009 992
                 
(tons) Q3 12 Q2 12 qoq (%) Q3 11 yoy (%) YTD'12
 

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