Posted on 26 May 2014 with 3 comments from readers
India’s penal gold taxes were one of the main drivers to lower gold prices last year. But the overwhelming victory of new prime minister Narenda Modi is expected to throw that leverage into reverse with hedge funds also taking their cue from Indian buyers.
‘It’s only a matter of time before these restrictions on gold are removed completely by the new Indian government,’ World Gold Council MD Marcus Grubb told the Telegraph. ‘Gradually, a number of things are now adding up to make investors more positive about gold.’
The newspaper reported that some experts see the unpopular gold import regulations being relaxed by the Hindu Diwali religious festival in October, often the trigger for a seasonal uplift in gold prices.
Even with the gold tax in place India was still the second largest importer of gold in the world after China last year with 825 tonnes imported against 860 in 2012, albeit illegal imports are thought to have added 200 tonnes as Indians usually buy gold whenever prices are low.
After the 28 per cent price correction last year the gold price is up eight per cent this year and gold ranks among the best performing major assets, while global stocks have mainly moved sideways. Actual gold demand was steady with global jewellery consumption up three per cent to 571 tonnes in Q1 and investment demand dipping from 288 to 282 tonnes.
ETPs to buy?
The market remains poised for a rebound. The Exchange Traded Products have stopped selling. That was what powered gold prices lower last year, far exaggerating the impact of the gold tax in India that many investors took as a reason to sell. Will the buying by ETPs now resume?
This year geopolitical fears like the crisis in the Ukraine have warmed buyers’ interest, though gold’s reaction has been a little lacklustre. It may take a return of official Indian buying to really stoke confidence further.
Gold bears predicting $1,050 an ounce as soon as tomorrow have been left looking stupid so far. Indian democracy may just have voted for higher gold prices. Perhaps that is what you might expect in the world’s biggest hoarder of the yellow metal.