Commodity Trade Mantra

Enthusiastic Gold Buying not expected – A lackluster Akshaya Trithiya this year.

Gold Trading

Enthusiastic Gold Buying not expected

Monday’s EU17 PMI data, Akshaya Trithiya on 24 April and Wednesday’s U.S. FOMC meeting are key events to watch for gold investors.Indiacelebrates Akshaya Tritiya on Tuesday, the second most auspicious, gold buying day after Dhanteras. The famous Indian wedding season buying is also at its peak now. But physical demand remains lackluster, particularly inIndiaahead of the all important & super auspicious Akshay Tritiya festival.

There are stray deals because the INR is not in supporting mode. People are already feeling the pinch of higher prices and the heavy depreciation of the INR is also adding up to the costs. The INR breaching its psychological Rs 52 mark against theU.S.$, makes Gold more expensive. High Gold prices coupled with a weak INR, demand is expected to be down by at least 50% from the year before & does not look set to rise in the near term. On a slightly positive side though, with the RBI cutting rates by 50 bps recently, in a longer term sense, economic growth could get stimulated to an extent and consequently gold demand may rise. Gold and silver imports inIndiahad registered a growth of 44.5% in April to March 2011-12 valued at US$61.5 billion while gems and jewellery exports registered a growth of 13.3% to US $45.9 billion.

The Reserve Bank of India – RBI, has set guidance to retail banks to lower their credit exposure to Finance companies that lend money against gold jewelry as collateral security and this, (in a nation which is the worlds largest buyer of Gold), ultimately might be highly bearish for gold prices as the RBI is trying to avoid systemic instability – A situation similar to the U.S. Sub-prime Home loan exposures going bad & the subsequent meltdown in the Home prices being far lower than the actual loan liability, leading to closures of large Banks & also repossessions or foreclosures of the Home loans rendering a lot of people homeless. Large price volatility has led to serious concerns that the value of gold held as collateral security may on some occasion be worth much less than the money loaned by these finance lending companies. The RBI recently announced it’s plans to issue detailed guidelines on the management of gold loans by such financial institutions. Tighter norms & standards for using Gold as collateral security could dissuade many bullion holders from borrowing against their assets and instead may sell that bullion into the market when in need. Thus Gold that would normally be held & locked up as collateral security for loans may instead be sold onto the market & this will in turn prove negative for Gold in terms of any further appreciation & will have serious implications on Gold prices.

As mentioned repeatedly in my earlier forecasts,- Surprising and contrary to many views, I forecasted in 2011 & strongly insisted that Gold inflows may increase gradually from 2012 onwards, thereby reducing Gold demand. Huge corrections can be expected. Gold may finally end its long Bull-run of the past 8-10 years. This may also prove to be one of the factors in driving Gold down.

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