Commodity Trade Mantra

Gold and Silver Markets focus on Eurozone Fin-Min meet for Direction

Gold and Silver Markets focus on Eurozone Fin-Min meet for Direction

Gold and Silver Markets focus on Eurozone Fin-Min meet for Direction

Gold and Silver Futures have been seen trading lower since morning but are also moving in a narrow range given the fact that most Asian markets are closed today. China, Hong Kong and Singapore markets are closed on account of Chinese Lunar New Year celebrations while Japan, Malaysia, South Korea, Taiwan and Vietnam are also closed for public holiday today. Comex Gold and Silver trades may remain range bound due to lack of volumes as the Chinese markets are closed for the entire week for Lunar New Year celebrations. MCX Gold & MCX Silver prices – traded in India on the Multi Commodity Exchange have been down since morning due to lack of triggers from International markets & pretty nothing much on the local front also. There may be some movement triggers for Gold and Silver out of Europe as European finance chiefs meet today to discuss aid to debt ridden Cyprus and Greece. Strength in the US Dollar and a rise in US stock markets following better-than-expected trade data drew investors away from Gold and Silver at the end of last week. Eurozone ministers are seeking to win back momentum in fighting the crisis as a tightening contest before Italian elections on Feb 24 – 25 and a political scandal in Spain disrupt market calm. Group of 20 finance chiefs and central bankers will gather in Moscow later this week. European leaders set the budget for 2014-2020 at 960 billion euros ($1.3 trillion), down from an original proposal of 1.047 trillion euros and less than the 994 billion euros spent in the current cycle. Eurozone economic data by European Union’s statistics agency, Eurostat due on Feb 14 this week will probably show the damage inflicted by the region’s sovereign debt crisis with the worst quarterly decline in output for almost four years. That will be the culmination of a series of GDP reports the same day from France, Germany, Austria, Slovakia, the Netherlands, Italy, Portugal and Greece. Spain and Italy, where GDP has probably declined for six straight quarters, are also the focus of concern about rising political risk. While measures to stem the region’s debt turmoil have helped curb sovereign bond yields from Spain to Greece, at least seven countries of the 17-nation bloc are in recession, leaving 18.7 million people out of work. ECB President Mr. Draghi at his monthly news conference on Feb 7 said, “The risks surrounding the economic outlook for the Eurozone continue to be on the downside.” ECB kept its benchmark interest rate on hold at 0.75% as expected. Late on Friday, Fitch affirmed Spain’s investment grade rating but warned that it could still downgrade the country’s sovereign bonds in coming months on worries about the economy and public debt levels. Fitch rates Spain BBB, two levels above speculative-grade debt, with a negative outlook.

CME Group lowers margins on Gold, Silver, Platinum & Copper:

CME Group, the biggest operator ofU.S. futures exchanges announced last week that it will broadly cut margins on precious metals including gold, silver and platinum as well as on copper, effective after close of business on Tuesday, Feb 12. The initial margins on the benchmark 100-ounce Comex Gold Futures contract stand lowered by 10% to $5,940 per contract from $6,600 & maintenance margins have been cut by 10% to $5,400 from $6,000. CME had trimmed initial margins on Gold Futures by 11% earlier also on 28 Dec 2012. The margin for COMEX 5,000-ounce Silver contract is now down by around 14%, and those of the 50-ounce Nymex Platinum futures contract lower by about 13%.

Curbs on Gold Imports in India lead to Gold smuggling:

Gold imports continue unabated even after a hike in customs duty last year, according to the All India Gems and Jewelry Trade Federation. In 2011,India had imported over 900 tons of Gold and none of it came through smuggling, the representatives of the gems jewelry industry told a press conference. In 2012, the imports were 950 tons, out of which 250 tons came through smuggling, reported Business Standard. “The hike in customs duty did not stop gold imports into India, but only changed the route as smugglers earn a profit of around Rs 200,000 on every kilogram of gold smuggled into the country,” said GJF Chairman Bachhraj Bamalwa. After the customs duty on gold was raised from less than 1 per cent to almost 6% in the past year, illegal gold worth Rs 942 crore was seized during April-June 2012, compared with 243 crore during the same period last year, said Bamalwa. “Our estimates show that because of the high customs duty and no check on bullion sales, almost 200-250 tons of gold has been smuggled into India in 2012 alone,” Bamalwa said.

INR outperforms other emerging-market currencies:

The INR – Indian Rupee is stronger so far in 2013 and is outperforming most other emerging-market currencies. That bodes well for Indian Gold Demand, though the Rupee will have to keep strengthening to have a major impact. The Gold Market tends to keep tabs on the Indian Rupee, since it can impact buying from India, which with China is one of the world’s two largest consuming nations. A weakening currency tends to increase the landed cost of Gold Bullion. A stronger rupee means higher Gold Demand from India. Of the emerging-market currencies, the rupee was the fifth-worst performer in 2012. But so far in 2013, the Rupee is the second best behind only Romania. The US Dollar was oscillating around 44 to 45 Rupees in the summer of 2011 before the Indian currency began to weaken. The greenback rose as high as 57.33 rupees in the summer of 2012. Dollar/ Rupee later eased but was back up to 55.38 early last month. However, the Rupee has regained some ground since. The US Dollar retreated to a low for the year so far of 52.90 rupees in the previous week on Wednesday. So to have a pronounced effect on Gold Demand, the rupee needs to strengthen a lot more. This is more true now, especially since Gold consumption also may be hurt by another increase in Gold import duties by the Indian government trying to limit imports due to the country’s ballooning Current Account Deficit.

For now, the market seemingly has taken a 25-basis-point rate cut by the RBI – Reserve Bank of India last month positively, analysts said. Previously, the central bank had been unable to ease monetary policy due to inflation. But a cut now suggests the bank sees easing inflationary pressures. Further, the rate cut could help jump-start the economy. Normally, a country’s currency depreciates when its central bank cuts rates, and vice-versa, said Christopher Vecchio, currency analyst at DailyFX. But so far, this has been one of those instances in which the reverse has occurred. “The RBI is helping the country’s economy grow,” he said. “So the Rupee looks more appealing.”

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