Last Updated : 30 January 2013 at 13:15 IST

Will India’s anti-Gold consumption drive become a success?

Source :Commodity Online

By Sreekumar Raghavan
India Government has raised the import duty on gold again by 2% to 6% and that on gold dore bars to 5% from 2%. Dore, an alloy of gold and silver is used by refineries to produce pure gold, accounts for about 100 tons of annual imports out of a total of 800 tons imported on an average in the country.

Last year when gold import duty was raised from 2-4%, it led to widespread protests from the bullion, jewellery industry and they downed shutters for weeks. However, this time the protests have been feeble with the Gem and Jewellery Export Promotion Council (GJEPC) asking for a reduction in gold import rate in its pre-budget memorandum submitted to the Finance Ministry.

(Gold Photo Courtesy: Bigstockphoto)

Why the anti-gold consumption drive?
India Government is against gold consumption because it is causing a huge outgo of foreign exchange estimated at $58 bn in 2011-12 which it expects to be reduced to $38 bn in 2012-13. Imports have fallen from a high of 969 tons in 2011 to close to 800 tons in 2012, according to industry estimates. The huge forex outgo is also causing large increase in current account deficit which is worrying the Finance Ministry.

Indians hold close to 18000 tons of gold and families or individuals holding more than 15 lakh worth gold assets could be liable to pay wealth tax which they may not be paying now. Once this is brought to banks, accounting becomes easy for the Finance Ministry.

Gold deposit schemes
Indians attach an emotional value to gold jewellery. It is also seen as a 100% secure investment, hence it will be herculean task for the government to curb the desire of the average Indian to possess more and more gold. From what has appeared from news reports, it is not quite clear how the gold investment schemes will work out. Here is a summary of what has already been announced:

1) Government plans to link gold exchange traded-funds (ETFs) and the gold deposit schemes of banks to encourage investors to use existing gold stock in the domestic market.

2)Gold investment schemes in banks will have a minimum tenure of six months instead of 3 years at present to make it attractive for investors. The gold invested in banks will be lent out to jewellers and at the end of the tenure the investors have the option of getting back the gold in physical or monetary terms.

3)Apart from the above, D Subbarao, Governor, the Reserve Bank of India , has suggested the idea of introducing inflation-indexed bonds, which will curtail demand for physical gold.

" The attraction to float inflation-indexed bonds is to wean investors away from gold. So, if we have to provide an instrument which yields inflation-indexed returns, this is the most straightforward asset, but we will have to engage both the government and banks," said RBI Governor D Subbarao on Tuesday. An earlier effort to introduce such bonds failed because of design flaws, he said.

Indians hold more quantities of gold in jewellery form and not in coins or bars – will this be acceptable in bank deposit schemes? Temples also hold large quantities of gold and if they were to be deposited in banks, will it be in a form acceptable to banks?

Several economists hold the view that investment in gold is wasteful and it could very well be invested in productive assets. Jagadish Bhagawati, an Indian born US-based economist has cited the poor financial inclusion due to lack of a well-developed banking system in the country after independence for the preference of citizens to hold more assets in physical gold.

There may be historical, traditional, religious, emotional factors behind the insatiable desire to own more gold by Indians. It may not be easy to lure them away from it by offering higher interest rate schemes or bonds, as people hold on to the yellow metal more on emotional and security reasons rather than just returns from it.

Tailpiece
The hike in import duty may turn out to be advantageous for e-gold, e-silver offerings of National Spot Exchange (NSEL), according to Amit Mukherjee, Head, Business Development at NSEL. Launching the e-gold, e-series trading platform of Commodity Online in Ahmedabad recently he said that e-gold registers a turnover of Rs 500 crore daily and it will get a boost on account of hike in import duty as it helps investors buy gold in demat form at 10-15% percent lower than market rate and with option to take delivery. Delivery centres are being increased from 16 to 40 in six months time, he added.

(The author is Chief Editor/Strategist at Commodity Online Group)

Commodity Technical Analysis: Gold Testing Fibonacci Support

Daily Bars

Chart Prepared by Jamie Saettele, CMT using Marketscope 2.0

Commodity Analysis: The current level, defined by the 61.8% retracement of the rally from the low and 1/4 close (1/4 is important because it was a high range day and high volume day), is critical to the next move in gold. Strength above Friday’s high would suggest that a low is in place.

Commodity Trading Strategy: Flat

LEVELS: 1626 1642 1655 1672 1683 1697

Last Updated : 28 January 2013 at 23:50 IST

Gold bearish,FOMC Meet, US non-farm payrolls to set price trajectory: Barclays

LONDON (Commodity Online): Gold prices tumbled last week failing to breach $1700 per ounce levels triggering profit taking amid improving market sentiments, according to Barclays Research.

The solidity of the physical market will set the downside for prices, while buying in China has been strong ahead of the Lunar new year, it will need to be coupled with a pickup in other regions to provide strong support. This week’s FOMC meeting and US non-farm payrolls will be key in setting gold’s price trajectory.

The macro environment remains bullish with uncertainties in USA providing some support while investor inflows appears neutral as exchange traded funds net redemptions amounted ot 4.2 tons lst week, extending the net outflows for the year-to-date to 23.4 tons, Barclays Research said.

“The bulk of the outflows continue to be concentrated in the US listed products. In our view, a slowdown in investor appetite remains a key downside risk for prices. “

Continued high volume on the Shanghai Gold Exchange in December indicates that Chinese gold demand has remained strong ahead of the Lunar new year. Bar premiums in Hong Kong have fallen since last week but remain elevated at $1.40. However, Chinese buying has not been strong enough to offset soft Indian demand. Local prices had fallen to levels last seen in August by the end of the week as the INR strengthened supporting consumption.

The close under 1675 opened up a pullback to range lows, and gold continues to slide to those lows near 1640 where we expect to see a bid materialise. Resistance: 1676, 1696 Support: 1650, 1625, Barclays Research said.

10 Reasons Precious Metals Prices Are Ready to Break Out In 2013

Last Updated : 27 January 2013 at 09:20 IST

Silver: The honest capital

Source :Commodity Online

By Dr Jeffrey Lewis
A basic issue with silver investing for many people is that the actual metal is scarce, valuable and increasingly vulnerable to explicit and implicit confiscation.

Yet silver is not only an investment vehicle. It also acts as an alternative savings vehicle to saving wealth in fiat currencies.

Silver remains both literal and symbolic of the principles here. Furthermore, the physical possession of silver requires a different kind of investor strength and resolve, and it involves directly confronting market risk, storage risk and confiscation risk.

Silver investment
Investment suggests the anticipation of making a profit, and that certainly has been the recent trend for those lucky to be holding silver. Most market observers acknowledge that silver will eventually trade to its intrinsic value based on the bullish underlying fundamentals.

Appealing investment qualities of silver investing include its various industrial properties and its strategic important as a scarce and valuable commodity with inelastic demand.

Will it matter if the thousands of ounces of silver used in each Tomahawk missile cost multiples higher in U.S. Dollar terms when the government paying for these weapons has an essentially infinite ability to create the necessary number of monetary units used to buy those ounces?

This highlights the role of silver as a monetary asset or one more akin to an alternative savings vehicle.

The sanctity of savings
People are now living in an economically challenging time period where savings and capital are needed most, and yet the reward for or return on savings is at its lowest point in recent history.

Saving requires self-respect, sacrifice, strength and stamina.Savings — like capital formation —is precious to the wider economic community.

In a system where the promises to pay are generally adhered to, savings should be rewarded over time by an accumulation of capital. This process would grant the saver more options and freedom than they otherwise would have had.

Investment implies trading or taking risk in return for an anticipated profit, but savers are owners.

Silver is honest capital
Silver is a scarce natural resource with considerable intrinsic value. As such, silver is honest capital. Taking physical ownership of silver requires self-awareness and responsibility. It is not easy.

Above all, silver investing and ownership requires honest thinking about ourselves, our capabilities and our limitations.

The protection of honest capital thus requires clear and rational thought about the world, its dangers, its opportunities and the nature of risk.

Since savers provide the capital which makes that activity possible, they make the satisfaction of society’s desires possible.As capital grows cumulatively, today’s capital stock lays the foundations upon which tomorrow’s prosperity is built.

Furthermore, the decisions that people of today’s generation make with their capital and savings are what they will leave to tomorrow’s generation. It seems best to leave capital of true intrinsic value to your heirs, rather than paper promises.