JOHANNESBURG – In a trading pattern that has become all too familiar, almost theminute the US session began on Comex Tuesday, the price of gold wassold down by almost $40 an ounce to trade at a five month low ofaround the $1600 an ounce. Yet the fundamentals for gold remainextremely bullish and there were two new major pieces of marketnews that investors would normally consider as rather bullish. And,this is in addition to the deteriorating crisis in the Eurozonethat should have seen a flight out of capital into gold. And,contrary to what one may expect, the US dollar rallied-on the backof a faltering euro- and gold was sold off sharply.
But, gold wasnot alone. Global equities and most commodities got hit in thisbroad-based sell-off. One of the articles released Tuesday was about the Indiangovernment’s decision to rescind the doubling of duty on goldjewellery which was introduced on March 16 by the Finance Minister,Mr. Mukherjee, causing imports of gold to plunge.Imports in Aprilhad plunged to 30 tons to 35 tons from 90 tons a year earlier,according to the Bombay Bullion Association.
While the new taxes were aimed at increasing the cost of gold purchases and curbing itsconsumption, they caused a country-wide strike by jewellers whichlasted for around 6 weeks. The removal of the excise duty is positive news for India’sjewellery industry and will probably revive demand for gold inIndia, the world’s largest gold consumer. “Gold demand will likely improve. It’s a good decision,” PrithvirajKothari, president of the Bombay Bullion Association, said of thescrapping of the excise tax. The other piece of bullish news was about Chinese demand for gold.According to news article published by Bloomberg, China’s goldimports from Hong Kong surged more than six-fold in the firstquarter of this year. Spout Pouch
Imports from Hong Kong were 135,529 kilograms(135.53 metric tons) between January and March, from 19,729kilograms in the year-earlier period, according to data from theCensus and Statistics Department of the Hong Kong government.Shipments in March rose 59% from February. Demand has climbed in the world’s second-largest economy and Chinamay overtake India this year to become the biggest user of gold,according to a forecast from the producer-funded World GoldCouncil. Last year, total Indian demand including for jewellery andinvestment was 933.4 tons compared to China’s 769.8 tons. To me, these two events are bullish for gold, and I also maintainthat the problems in the Eurozone are extremely bullish for gold.Since this global financial crisis began in 2008, things have notimproved, and today the risk of a collapse in the monetary systemis looking more imminent. Plastic Snack Bags Manufacturer
And, a loss of confidence in fiatcurrencies will lead to a massive flight to hard assets especiallygold and silver. While there are many who have confidence in our global leaders, Iam one who does not. Therefore I continue to urge individuals toown some gold, and the price should not be the determiningfactor—possession should be. It is obvious that current policies of EU leaders are flawed andare not doing anything to reverse the downward spiral of fallinggrowth, rising unemployment and weakening banking systems. Stand Up Pouch Bags Manufacturer
Onething that it has done though is that it has caused mountingsocial, economic and political turmoil While these leaders debate the pros and cons of austerity andgrowth or whether sound finances will generate growth throughstructural reform, one thing I am sure of, is that things are goingto get worse before they get any better. Right now Greece is collapsing and moving rapidly into furtherpolitical turmoil. For once I agree with well-known economist,Nouriel Roubini, who said. “Greek membership of the Euro zone isnow at risk with serious contagion risks for the rest of theperiphery.” He also added that the “result of Greek elections ismuch more serious than the French one as the former leads to chaoswhile Hollande will turn out to be a moderate.” While Hollande has pledged to “finish with austerity,” Merkel hascautioned against hopes that the austerity measures already agreedby European leaders could now be renegotiated.
“We in Germany, andI personally, believe the fiscal pact is not up for negotiation,”she said. It seems that EU financial leaders are going to have to rethinktheir plans of austerity measures to control their spiraling debtand runaway government spending. But, if they are to spend moremoney, just how are European governments going to pay for it all?If the ECB dishes out more money to their banks so that they maybuy more sovereign bonds, ultimately this will exacerbate theEuropean banking and debt crisis. Meanwhile, the latest employment figures released by the USDepartment of Labour on Friday showed that non-farm payrolls roseby only 115,000 in April, which was well below market expectationsof plus 160,000. At the same the unemployment rate dropped to 8.1%,its lowest level in three years.
Investors are now worried that aslower than expected recovery in the economy will impact negativelyon hiring which in turn will curtail consumer spending whichaccounts for about 70% of the economy. This may be the catalyst toprompt the US Fed from another round of monetary easing which maybe introduced under a new term instead of “quantitative easing.” The latest unemployment figures from the Eurozone were not all thatencouraging either. In March the unemployment in the Eurozonejumped to a record 10.9%. The figures coincided with a survey showing manufacturing in the17-nation Eurozone stumbling to near three-year low levels asspending cuts and tax rises push the bloc towards recession. Almost17.37 million men and women, 169,000 more than in February, wereout of work in March, according to the Eurostat data agency.
Eventhough the data showed that the southern Eurozone countries wereworst affected — with Spain’s jobless rate 24.1% according toEurostat — there were signs of stronger states such as Germanycoming under pressure too. Germany had a jobless rate of 5.6% inMarch, and although there was a headline increase of 19,000 it wasonly the second rise in 25 months. While these leaders debate the pros and cons of austerity andgrowth or whether sound finances will generate growth throughstructural reform, one thing I am sure of, is that things are goingto get worse before they get any better. And, as the bullion bankscontinue with their surreptitious interventions in the goldmarkets, I am not going to be duped by any political rhetoric thatthings are improving. TECHNICAL ANALYSIS Minutes before the opening of the US session, the price of goldgets sold off.
I believe it will rebound from $1600/oz level. About the author David Levenstein began trading silver through the LME in 1980, over the years he hasdealt with gold, silver, platinum and palladium. He has traded andinvested in bullion, bullion coins, mining shares, exchange tradedfunds, as well as futures for his personal account as well as forclients. http://www.lakeshoretrading.co.za Information contained herein has been obtained from sourcesbelieved to be reliable, but there is no guarantee as tocompleteness or accuracy. Any opinions expressed herein arestatements of our judgment as of this date and are subject tochange without notice.
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