Wednesday, January 23rd 04:12 PM IST

Gold's bullish fundamentals reasserting themselves

# Gold  # Gold Market  # Gold prices  # Gold demand  # India Gold  

On 21 January, in order for the Indian government to curb the rising current account deficit, the import duty on gold and platinum was raised from 4% to 6%. Gold is the second largest import after crude oil in India. The gold imports are expected to fall by 20 to 25 percent this year.

By Kelly Smith
The U.S. Comex gold futures have surged two weeks in a row, ending at $1,687.00 last week. They rose a further 0.30% this week to $1,692.20. The S&P 500 index has risen for three consecutive weeks, and rose a further 0.44% this week to 1,492.56, about 4.6% below its 2007 peak.

The Euro Stoxx 50 index rose 0.26% this week, after falling 0.30% last week. The CRY Commodities index has also increased in the past two weeks, and rose a further 0.10% this week.

The Dollar index fell below 80 on Tuesday.

To end stagflation, the Bank of Japan agreed on a 2% inflation target, but waited on further quantitative easing, putting the 13 trillion Yen per month asset purchases on hold until January 2014. The uncertainty of the timing of unlimited quantitative easing has caused the Yen to rebound by about 2% since last Friday. However, the average inflation rate in the past 20 years in Japan was 0 percent p.a. The market believes that the BOJ does have to ease a lot in the longer run in order to reach its inflation goal of 2%, which should be supportive of gold prices.

On 21 January, in order for the Indian government to curb the rising current account deficit, the import duty on gold and platinum was raised from 4% to 6%. Gold is the second largest import after crude oil in India. The gold imports are expected to fall by 20 to 25 percent this year, according to the All India Gems and Jewellery Trade Federation.

Gold imports have probably fallen by 42 to 45 percent in 2012 due to the import duty rise. However, given that the demand for gold has been fundamentally strong due to hedging needs against inflation and currency depreciation, the increase in import duty will cause a further jump in gold smuggling.

According to a quarterly Bloomberg poll, about two-thirds of those surveyed expected to increase their equity positions in the next 6 months while 53% believed that equities would offer the highest return in 2013. The optimism on stocks likely reflects that the U.S. economy has continued to grow, the Euro has not collapsed while China has escaped a hard landing. The survey forms a positive backdrop to this week’s Davos World Economic Forum in Switzerland, with the restoration of the trust and the growth of the global economy being uppermost on the participants’ minds.
Courtesy: Sharps Pixley

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