Market Review (Feb 6 to Feb 20, 2012)
Gold remained consolidated within a range of $1700 and $1750 in the fortnight. Renewed tensions in the eurozone amid delay of the Greek bailout plan failed to drive demand for gold as safe haven asset. At COMEX gold Apr contract lost by $5.20/Toz while COMEX silver Mar contract lost by 23.90 cents/Toz. In the same period MCX gold Apr contract gained by Rs 267.00/10 gram and MCX silver Mar contract gained by Rs 163.00/Kg. At NSEL, Ahmadabad spot gold gained Rs 115.00/10 gram and silver lost by Rs 67.00 /Kg. NSEL Demat E-Gold gained by Rs 13.00/ gm while NSEL Demat E-Silver gained by Rs 26.50/ 100 gm.
Gold prices held steady above $1730 per ounce in the fortnight - in line with where it has spent much of February. It rose initially during the fortnight but fell from two-month highs of $1760 per ounce following losses in the euro, a broad setback for the risky asset, as uncertainty over negotiations on a bailout package for Greece triggered a wave of profit selling. Meanwhile, the US dollar strengthened due to better-than-expected US economic data and FOMC minutes. The market appeared to have priced in a lower chance of QE3 after the Fed changed workings in the minutes for the January meeting. This has also reduced the appetite for the yellow metal.
On the other hand, several positive events and news supported metal markets to remain steady as the People's Bank of China announced cutting reserve ratio while China and Japan also agreed to boost International Monetary .
Fund's capacity in attempts to increase the fund's ability to fight the European debt crisis through supporting indebted nations to prevent the contagion from spreading further. An easing monetary stance boosts sentiment in gold by raising the inflation outlook down the road and attracting investors to bullion, a good hedge against inflation.
Meanwhile, World Gold Council (WGC) mentioned that global demand for gold was 4067.1 tons in 2011. This was the highest tonnage level since 1997. The total demand for gold was worth $205.5 billion. Investment sector remained the main growth propeller for gold last year. The annual demand in investment sector was 1640.7 tons in 2011 that was up 5 per cent from 2010. China and India cornered 49 per cent of the global demand for gold in 2011. India remained the largest consumer of gold with 969 tons. China demand on the other hand was 769.8 tons, up 20 per cent on a yearly basis.
On the other hand India's gold imports slumped during the October-December quarter 2011, as high prices hit jewelry demand. India imported 157 metric tons during the three months, down from 281 tons a year earlier, witnessing a massive fall of 44 per cent. Total imports last year rose to 969 tons from 958 tons in 2010, as purchases in the first half offset reduced buying later in the year. India’s less demand in the fourth quarter of 2011 was largely because of a weak rupee, which made imports of gold priced in dollars more expensive.
The domestic currency fell precipitously in the second half of 2011, on foreign capital outflows. The rapid rise and fall in the rupee and resulting local gold price swings impacted gold buying.
Outlook
The yellow metal seems to be in a good mood to extend the gains if $1700 per ounce level manages to hold up.The commodity has had a very good time in last few weeks, rising just like a risky asset though the gains have ensured that the losses in end December 2011 are wiped out in totality.It is biased to the upside and could extend the gain ahead of the continued European negotiations over the uncertain Greek financial situation and the second bailout deal, where Greece has finally met all the requirements needed to become eligible for the financial aid.
In addition, the annual report of the World Gold Council showed that Germany and Switzerland led the sharp incline seen in gold prices in 2011, while China and India supported gold further.
Demand for gold surged for the first time above the 4000 metric ton to 4067 ton worth nearly $206 billion in 2011, supported by the Indian demand, whereas so far in 2012 the nation demanded around 500 metric tons. Expectations suggest that China could demand the most quantity of gold during the coming period.
