Market Review (Mar 21 to Apr 5, 2012)
Gold slumped sharply in the fortnight extending its losses to two and half month lows as US dollar gained and the world equities eased. The yellow metal tumbled to $1613 per ounce mark before settling back to $1630 after the Fed revealed that they are less willing to initiate another round of quantitative easing. At COMEX Gold Jun contract lost by USD 29.10/Toz while COMEX Silver May contract lost by 45.00 cents/Toz. In the same period MCX Gold Jun contract lost by Rs. 161.00/10 gram and MCX Silver May contract lost by Rs 490.00/Kg. At NSEL, Ahmadabad spot Gold gained Rs. 121.00/10 gram and Silver lost by Rs. 2099.00 /Kg. NSEL Demat E-Gold lost by Rs. 6.50/ gm while NSEL Demat E-Silver gained by Rs. 16.00/ 100 gm.
Gold prices were facing major ups and down on the talks of quantitative easing (QE) or no QE from the US Fed members early in the fortnight. Then Gold tumbled below $1630 an ounce mark after the Fed revealed that they are less willing to initiate another round of quantitative easing. Earlier in the fortnight gold was about to touch the $1700 mark on Bernanke's comments about weakening US economy and the global investors had interpreted his comments as an indication that the central bank isn't willing to exit its ultra-easy monetary policy. On quarterly basis gold gains to 6.7%, this follows a 3.4% decline in the fourth quarter of 2011 and yearly gains of 10%. Soaring US dollar also dented the demand for the yellow metal. US dollar rose sharply against the Euro as the Federal Open Market Committee minutes for the Fed's policy-setting committee's March meeting showed no rush to add to its unconventional monetary stimulus.
Meanwhile investors and traders also remained wary of the retail sector demand from India as jewellery shops remained shut for protest of the latest government measures to curb the excessive Gold imports from India. The metal dropped under $1640 per ounce and were seen failing to gain much on the worries pertaining to the Indian retail demand. The jewelers in the largest gold consuming nation were demanding removal of excise duty on unbranded jewellery and partial removal of import duty as imposed in the Union Budget. Because Jewelers were in fear that higher indirect taxes will lead to higher costs thereby affecting their business.
The outcome of strike showed that India's gold imports fell by around two-thirds in March from a year earlier after jewelry retailers shut their doors. Gold imports totaled 15-20 metric tons in March, down from an estimated 50-60 tons in the same month last year. Later in the fortnight, Finance Minister Pranab Mukherjee said he may consider tweaking the excise tax on unbranded jewelry sold by smaller, independent businesses. The government said the tax changes are aimed at discouraging purchases, thus limiting the country's current-account deficit. Gold is India's second-largest import item by value after crude oil.
QE has been a key driver in gold's Bull Run over the past year, as it keeps interest rates and borrowing costs low, which makes gold more attractive compared with yield- or dividend-bearing assets such as bonds or stocks. While Minutes of the fed meeting showed that policy makers have fewer tendencies to expand non-standard measures. With the gradual improvement in U.S. data which is giving signs the world's largest economy is on the right track towards recovery. So the precious metals complex looks to be vulnerable in the near term given physical demand remains muted in gold also and has failed to provide a solid floor. Strike action by jewellers in India has also lessened the gold demand. Gold is also lacking sufficient investment enthusiasm to be able to sideline the physical market as it did earlier in the year thus, in turn, prices are struggling to gain momentum. But in the longer term, we still stay very confident that the upward trend in gold is still very constructive and gold will perform even more like a currency, and be less dependent on the jewelry sector.