In the last week, Spot Gold prices gained around 1.0% as rising uncertainty over the global economic scenario led to higher demand for the yellow metal as a safe-haven asset. Economic data from the major economies in the recent past has not been satisfactory and has led to concerns over slow recovery in growth in countries like the US, UK, Euro Zone and China. Investor sentiment continues to remain mixed due to no clear direction over economic progress. In the global financial markets, economic recovery has currently taken centre stage and data from major economies is currently driving risk sentiments. Fears of a double-dip recession have gripped the financial markets and this is the main factor which is boosting demand for gold.
Spot Gold prices touched a high of $1,237/oz in the last week and prices on the MCX touched a high of Rs18,790, gaining 0.9% on a week-on-week basis. Sharp gains in gold prices on the MCX platform were capped on the back of Rupee appreciation. But festive season buying in India is expected to boost demand and lead to higher prices. The Rupee is expected to trade on a volatile note as market sentiments remain mixed. If risk aversion holds grip in this week then the currency is expected to depreciate, thereby helping gold prices on the MCX to rise.
Holdings of the SPDR Gold Trust rose to 1,295.51 metric tons as of 18th August from 1,294.60 metric tons the previous day. SPDR Gold Holdings had touched a record high of 1,320.43 metric tons on 29th June. Uncertain economic scenario is expected to lead to increased demand for gold in the short-term.
Factors that will boost demand for gold
· Gold imports in India gained 18.9% to 155.6 tonnes in the first six months of this year. Demand for gold in the Indian markets is expected to rise as a good monsoon is expected to raise rural incomes. Rural consumers are expected to flock to gold for investment as well as jewelry requirements.
· China is allowing more banks to import and export gold for consumption purposes. The country has also opened up gold trading to foreign companies. China is the world's largest gold producer but the country had to import 100 tonnes of gold on the back of rise in demand. China's share of global gold demand has risen to 11% in 2009 from just 5% in 2002.
Fundamental Outlook
Global financial markets are currently concerned over a double-dip recession. Recovery in the US, the world's largest economy is under doubt as unemployment rate in the country continues to hover around 10%. This indicates that the US job market is currently weak. Also, credit is locked up tight and the housing market is awash in unsold and uninhabited homes. The US Federal Reserve left its benchmark interest rate at 0-0.25% and said that it would keep rates low for an exceptionally long period. The central banks said that it would buy government debt by reinvesting proceeds from its mortgage bond portfolio into long-term Treasury securities.
Growing uncertainty over the impact of the Euro area sovereign debt crisis coupled with slow progress on the US economic front is dominating market sentiments. Debate on whether economic recovery has picked up pace or no also continues. Chinese economic growth is also witnessing a slowdown as the GDP growth in the second-quarter in China slowed down to 10.3% against growth of 11.9% in the first-quarter. The overall global economic scenario is bleak and demand for precious metals as a safe-haven is expected to rise.
We have a positive view on Gold from a short-term perspective as growing economic uncertainty will raise demand for gold as a safe-haven. But sharp gains in Gold prices could be capped as the DX is expected to strengthen.
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