We at ASR want India should increase Import Duty to 50% for Next 6 Months & Should Ban Currency Future and then see Real Level of INR.
The latest buzz circulating around the gold market relates to news that Pakistan’s Economic Coordination Committee of the Cabinet (ECC) has decided to ban duty free gold imports for thirty days. Why you ask? Because those pesky Indians are using Pakistan as a conduit to get around the country’s recent 8% duty imposed on gold imports.
All of this of course begs the question: With the price of gold “plunging” over the past several months, why did Pakistan and India both feel the need to take such draconian measures against a barbarous relic that everyone is supposedly panic selling? If there is so much gold to be had and no one wants it, what’s the problem? Strange indeed. From the The Express Tribune:
The Economic Coordination Committee of the Cabinet, headed by Finance Minister Ishaq Dar, took the decision to ban the import of the yellow metal for one month with immediate effect.
Easy money and near-zero interest rates from the Federal Reserve created a great environment for gold bugs to drive the price of gold higher and higher. Central banks around the world also were printing new money, creating a perfect storm for gold. But now we have seen a 1% rise in long-term interest rates and the quantitative easing is expected to end sooner than expected. These new factors crushed the price of gold. The World Gold Council is obviously pro-gold, but it has issued a report that provides a reality check between rising interest rates and the effect on the price of gold.
A new investment outlook for gold from the World Gold Council may act to ease some of the fears that drove gold down from $1,800 per ounce in 2012 to about $1,200 in 2013. Gold has acted as though it is trying to find a bottom, but investors are understandingly afraid about interest rates.
Gold is supposed to be less attractive as a store of value and cash alternative if interest rates rise from less than 1% on the short end of the curve to 3% or 4% again. What if the fears about gold are overblown?
The World Gold Council asserts that the fears of monetary policy normalization come with some misconceptions about the relationship that gold has with real interest rates. Its assessment is that higher real interest rates “are not unconditionally adverse for gold, as the effect of other factors needs to be considered.” It believes that gold’s portfolio attributes are not compromised by a return to a normal interest rate environment. A significant issue and development is that the influence that U.S. interest rates have had on gold has diminished in past few decades as gold demand has shifted from the West to the East.
Gold conspiracy theorists have a new bogeyman. Inventories of gold bars held in the COMEX warehouses are falling. This fact is offered to support the stale allegations of “fractional gold” and “manipulation”. They have been predicting a “signal failure” that is coming any day now, like the Great Pumpkin in the Charlie Brown Halloween special. If not that, then surely at least the price of gold is going “to da moon”. Any day now, we have been repeatedly told, every day and every dollar down from the peak around $1900.
The price will rise again, as the centrally planned paper currencies continue their inexorable slide towards the oblivion of bankruptcy. The dollar, like all irredeemable paper currencies before it, will become worthless one day. That does not mean that there cannot be significant volatility in the meantime.
Hedge funds and other big speculators in commodities have started selling gold in a big way, trade data showed on Friday, just a month after they had supported the precious metal amid a record tumble in its price.
Money managers, including hedge funds, pulled $1.4 billion from the U.S. gold futures market for the week ended May 14 by trimming their net long positions in the metal, according to Reuters calculations of data released by the Commodity Futures Trading Commission (CFTC).
Just a month ago, CFTC data showed hedge funds had added to their net long positions in U.S. gold futures despite a record loss in bullion prices at that time due to a broad commodities selloff triggered by global economic worries.
The spot price of gold fell to below $1,340 an ounce in mid-April, losing over 8 percent or more than $125 in a single day. The selloff was mitigated by buying support later in the week from consumers attracted to the drop in prices for gold bars, coins, nuggets and jewelry. Gold futures then shot back up, to above $1,400.
RBI’s gold reserves worth Rs 1.8 trillion were wiped out.
The global price of gold slipped by 29% due to which the gold it held worth $34.08 billion now stands at $24.17 billion. International gold prices crashed following reports that Cyprus may sell its gold reserves to curb its growing fiscal deficit. This figure is in comparison with that of September 2011. It then held gold worth 557.75 tonnes valued at $1900/ounce and today it stands at 1,347.95/ounce.
Banking sectors say that RBI had gained largely in the past from buying gold. The prices kept going up. Cyprus may sell gold worth about €400 million (Rs. 2, 840 crore) to cover its fiscal deficit. If the 13.9 tonne sale takes place, this will be the single largest disposal by a central bank in recent times. France sold 17.4 tonnes in 2009.
Since 1990, RBI gold was 20% of RBI’s total forex reserves. It gradually dropped to 3% in September 2008. It bought from IMF around 200 tonnes which took the holding to 8%.
Central banks buy gold to be used in times of crisis and also as an investment. Apart from gold, it holds US treasury bills, sovereign bonds and foreign currency assets.
One of the unexpected consequences of the recent plunge in the price of gold (for whatever reason, and there are many proposed explanations for why gold has tumbled, none of them completely accurate or comprehensive) is that when the European Commission set the precedent with the forced sale of Cypriot sale for a total of €400 million “to cover ELA losses” as Mario Draghi dictated to the aptly named head of the Cyprus Central Bank, Panicos, he set a line in the sand especially when it comes to German expectations. Because while the size of the Cypriot bailout will likely keep expanding, the one fixed component is the €10 billion loan that Merkel has still to get approval for in parliament. This number is set in stone, and any additional bailout “funding” will have to come from either further depositor impairment (until eventually even the insured depositors become impaired, again) or as the case may be, the country is forced to sell all of its sovereign hard assets, like its gold. Which means that no matter what, Cyprus will have to sell enough gold to cover a €400MM shortfall, as point 29 of the Debt Sustainability Analysis demanded.
And therein lies the rub.
We’re not sure if this has anything to do with the plummeting price of gold, but it’s interesting that Kitco.com is down.
Kitco is one of the biggest gold sites in the world, and it’s where tons of people go to first to get a real-time quote on precious metals.
It’s especially popular in Canada, but not simply there.
We have no idea if the site is down by fluke, or related to the numerous gold watchers, eagerly refreshing every second to see the carnage.
Gold has faced stiff headwinds lately as investors abandon alternative investments to chase record-high stock markets. Probably the most significant has been the major selling hammering the flagship GLD gold ETF. It has suffered such intense differential selling pressure that its custodians have been forced to dump enormous quantities of physical gold. What are the implications of this flood of new supply?
The amount of gold bullion GLD has hemorrhaged recently is amazing. To put it into perspective, earlier this week the rumor that embattled Cyprus may be forced to sell its official gold reserves made news. The Cypriot government owns 13.9 metric tons of gold. But on a single trading day alone in February’s gold capitulation, GLD had to sell 20.8 tonnes! The supply recently added by GLD dwarfs everything else.
Why is GLD dumping gold so aggressively? While silly conspiracy theories abound as always in the gold world, the reality is far less provocative. GLD’s mission is simply to track the price of gold. The World Gold Council (which is funded by leading gold miners) created this gold investment vehicle in November 2004 to offer stock investors an easy, cheap, and efficient way to obtain gold exposure in their portfolios.
The gold miners created a direct conduit for the vast pools of stock-market capital to chase gold. The only way for GLD to fulfill its mission of tracking gold is for this ETF to shunt excess GLD-share demand and supply into underlying physical gold bullion itself. This capital sloshing into and out of gold via GLD has naturally had a massive impact on global gold prices. And lately gold has suffered a major GLD exodus.
During times like 2009 when gold grows popular among investors, GLD shares are bought up far faster than gold itself is rallying. This excess, or differential, GLD demand would quickly force this ETF to decouple from the metal to the upside if not equalized into physical gold. So GLD’s custodians sop it up by issuing new GLD shares to meet demand. They then use the proceeds to buy more gold bullion.
But when gold is falling out of favor like now, capital flows reverse. GLD shares are dumped at a quicker pace than gold’s own selloff. This differential selling pressure creates an excess supply of GLD shares. This ETF would decouple from gold to the downside if this wasn’t equalized into the metal. So GLD is forced to buy up this excess supply. It raises the cash to do this by selling some of its gold bullion.
Curious why every bank and their grandmother, and most recently Goldman today, has been lining up to push the price of gold as low as possible? Here’s why:
- CYPRUS TO SELL 400 MLN EUROS WORTH OF GOLD RESERVES TO FINANCE PART OF ITS BAILOUT – TROIKA DOCUMENTS – RTRS
But, but… the bailout was prefunded and there was no need to provide any additional cash? What happened: was the deposit outflow discovered to have been even greater than the worst case scenario and thus Cyprus needed even more cash? As for the buyers? We will venture a guess: central banks buying at the lows.
Finally: congratulations Cypriots: you are now trading your gold for the one time, unbeatable opportunity to remain a vassal state to the Eurozone. But at least you have your €.