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Gold Markets Under Constant Pressure - 12th June'13

Gold Markets Under Constant Pressure - 12th June'13

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Published by Angel Broking
12th June, 2013
12th June, 2013

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Published by: Angel Broking on Jun 13, 2013
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Gold Market Under Constant Pressure
 
Wednesday | June 12, 2013
 
www.angelcommodities.com
 
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Content 
Gold market under constant pressureGold demand and impact on pricesCurrency factorGold versus equity performanceLong-term ViewNear-term ViewTechnical Levels for 15 Days
Angel Commodities Broking Pvt. Ltd.
Registered Office: G-1, Ackruti Trade Centre, Rd. No. 7, MIDC, Andheri (E), Mumbai - 400 093.Corporate Office: 6th Floor, Ackruti Star, MIDC, Andheri (E), Mumbai - 400 093. Tel: (022) 2921 2000CX Member ID: 12685 / FMC Regn No: MCX / TCM / CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302
Disclaimer:
The information and opinions contained in the document have been compiled from sources believed to be reliable. The company does not warrant its accuracy,completeness and correctness. The document is not, and should not be construed as an offer to sell or solicitation to buy any commodities. This document may not bereproduced, distributed or published, in whole or in part, by any recipient hereof for any purpose without prior permission f 
rom “Angel
 
Commodities Broking (P) Ltd”. Your
feedback is appreciated on 
Reena RohitChief ManagerNon-Agri Commodities and Currencies
reena.rohit@angelbroking.com(022) 3935 8134 
 
 
Gold Market Under Constant Pressure
 
Wednesday | June 12, 2013
 
www.angelcommodities.com
 
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Gold market under constant pressure
For the kind of command that gold draws globally, factors affecting the price trend are immenselydiversified. Hence, from monetary policy decisions to currency movements and demand-supplyfundamentals, all factors provide direction to the price trend of gold, thereby making it a very complexmove. In the current Indian context we have seen that, prices have taken cues from Rupee weaknessalong with the measures that the Reserve Bank of India (RBI) took in order to curb imports of the yellowmetal as it is fuelling further increase in the Current Account Deficit (CAD).
The RBI’s move was primarily targeting a reduction in the CAD and it also aimed to reverse the
depreciation in the Rupee, which in turn was having a negative impact on the Indian economy. However,the move of restricting gold imports by banks and nominated agencies and providing them the onlyopen window for imports for jewelry exporters, that too only through the 100 percent cash paymentbasis has come in as a negative setback for the gold market.This we feel, may not trigger a sharp downside in demand but will create a supply shortage of the metalin the market. Hence, during the wedding and the festival season, increase in demand for gold couldspike prices further. Additionally, the increase in imports duty will further raise the landed cost of gold inIndia. With these moves, the central bank will not be able to arrest the price rise or increase in demandbut it will tackle the supply-side situation, where small jewelry exporters may not be able to fulfill the100 percent advance cash payment method and in turn lead to an overall business loss.Stocks of major gold jewelry manufacturing firms have been hit badly due to the payment criteriainvolved in imports of the commodity. Keeping this in mind, we feel that the domestic gold market is infor a volatile phase, while the demand patterns continue to change, keeping in tandem with the pricemovement and the investor perception of the global financial markets.Coming to the gold import figures in India,
that triggered the central bank’
s move -the Economic Advisory Council isexpecting gold imports to touch 300tonnes for the April-June quarter, a periodwhen demand witnessed a sharp increaseon the back of correction in prices. Whilephysical buying saw a jump post the pricecrash, the ETF holdings witnessed a sharpcorrection. This trend was not only seen inthe international markets but also in India.
Source: Angel Research, Reuters
 
 
Gold Market Under Constant Pressure
 
Wednesday | June 12, 2013
 
www.angelcommodities.com
 
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1600162016401660168017001720174080085090095010001050110011501200Q1 2012Q2 2012Q3 2012Q4 2012Q12013
Spot Gold ($/oz) v/s Global Quarterly Gold Demand
Global Quarterly Gold DemandSpot Gold ($/oz)
275002800028500290002950030000305003100031500125145165185205225245265Q1 2012Q2 2012Q3 2012Q4 2012Q12013
India Gold Imports v/s MCX Gold Prices (Rs.10/gms)
India Quaterly Gold ImportsMCX (Rs.10/gms)
100010501100115012001250130013501400140014501500155016001650170017501800
Spot Gold ($/oz) v/s Avg. SPDR ETF Holdings
Spot Gold Avg. Prices ($/oz)Average ETF Holdings
+ve 87%correlation of SpotGold Prices withSPDR Gold TrustHoldings
Gold Demand and Impact on Prices
The adjacent chart shows how gold prices indollar terms have moved in tandem with thequarterly gold demand. The movementindicates a 94 percent positive correlation andshows that rise or fall in gold demand has adirect impact on prices. When world golddemand peaked to 1188 tonnes during theQ42012, average prices during the samequarter has increased by 4 percent. However,a dip in quarterly demand during Q12013 to963 tonnes lowered the quarterly averageprice to $1631/oz, marking a correction of 5percent in prices.The chart on the right hand side shows that goldprices on the MCX increased with a rising trend of imports and corrected simultaneously as importsdeclined. During Q42012, when gold importsincreased to 255 tonnes, rising 14 percent from theprevious quarter, prices also rose, marking aquarterly average of Rs31,240/10gm on the futuresmarket. The correlation of these factors however ismildly positive as other factors like the Rupeemovement also had an impact on prices.
ETF Scenario and Price Trends
Movement in ETF Holdings has provided majorcues to Spot Gold prices and the adjacent chartshows that average monthly SPDR ETF GoldHoldings started witnessing a decline from
Aug’12 onwards but ma
 jor withdrawals fromthe ETF were seen since the start of 2013. SpotGold prices have shown a similar decliningtrend and the chart suggests a positive 87percent correlation between the two, despiteETF demand accounting for just around 6percent of total gold demand.
Source: Angel Research, ReutersSource: Angel Research, ReutersSource: Angel Research, Reuters

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