Gold prices are likely to remain volatile while trading volumes remain low & movements subdued as markets wait for the developments of this week’s European Union summit on debt issues that begins Thursday. This week’s European Union summit is the 19th since debt crisis broke out in early 2010.
Huge surprises, Shock waves & Highly unexpected & un-predictable turn of events expected this week. Be prepared.
Cash positions in Global investment portfolios again over 7%. Back to levels not seen since the aftermath of the Lehman Brothers collapse. The overall market sentiments are low & there are pessimistic views & expectations about the outcome of the EU summit if market talks are anything to go by, which have been largely formulated by the strongly opposed stand & hawkish statements made by the German Chancellor recently. Merkel said Living beyond means led to Euro Debt Crisis & that Europe will not have shared liability for debt as long as she lives, stating that it was economically wrong & counterproductive. German Chancellor Angela Merkel sought to bury once and for all the idea of common euro zone bonds to deal with the debt problems. Italian and Spanish bond auctions Tuesday fetched still-higher yields, which signal more negativity on the horizon. Adding to the European woes, Moody’s, downgraded credit ratings of over two dozen Spanish banks. Expectations for commodity demand are likely to soften, suggesting looser supply/demand fundamentals on the basis of recent soft Chinese, German and U.S. economic data plus continued European turmoil’s, although gold prices may benefit in the longer run owing to a rising probability of quantitative easing throughout the second quarter. Large QE or Bailout disappointments could take industrial Base Metals considerably lower. On an official request by Cyprus (5th Euro nation to request a rescue) for aid from EFSF or ESM, ECB said Cyprus government bonds (rated junk) are now ineligible as collateral in refinancing operations as they no longer meet minimum credit worthiness standards.
Any favorable outcome from the summit could trigger sharp rises for the Euro, Gold prices, Silver; Base Metals & the Equity Markets Globally. Sovereign-debt purchases by the European Central Bank, issuance of euro bonds and Euro-zone risk sharing along with Chinese monetary stimulus & the rising probability of (QE3) an outright U.S.balance sheet expansion are currently seen as sole market triggers for further upside momentum. German officials have hinted at further cooperation, including comments from the country’s financial minister suggesting the country could hold a referendum on EU integration.
Silver exchange-traded-product holdings are headed for their biggest one-month rise this year. Even though industrial demand remains fragile, Silver ETP flows have picked up this month and are up 293 (metric) tons, set to be the strongest month on record since September last year. This follows an inflow of 41 tons last month. Total silver ETP holdings as of Monday were 14,944 tons, the highest since May 3.
According to the International Monetary Fund, the central banks of Russia, Ukraine, Turkey and Kazakhstan boosted their official Gold reserves. Assets held under India’s Gold ETFs nearly doubled on YoY basis to $1.85 billion as on 31 May 2012 from $981 million a year ago. The number of Gold ETFs in India has increased to 14 since the product was first launched in early 2007.
Weaker Rupee weighing heavily on gold demand from India as traders also favor cash on concerns over further deterioration in the euro zone crisis. The fall in the Indian rupee, which hit a record low last week, has sent Gold prices in India soaring despite the weak global trend, limiting further imports.
A relatively dull start to India’s monsoon season could have a significant impact on gold demand in the world’s top consumer. A good harvest after a good monsoon is the ideal scenario for India’s gold market. A good monsoon ensures a healthy harvest size which generally means a rise in gold investment and jewelry demand after the substantially good harvest returns. A drought or a dismal monsoon in India would mean a large reduction in Gold demand in the world’s largest Gold consuming nation. Buying from rural areas accounts for about 60% of gold imports, and farmers depend on monsoon rains for better yields, production and profits. Farmers traditionally invest in Gold also due to a lack of modern banking & futuristic Investment facilities in rural areas. A low rainfall will also instigate sharp rises in agricultural commodity prices triggering higher inflation while having a negative impact on Gold prices. The demand for Gold remains subdued in Indian markets currently also due to the relatively high Gold prices as the Indian Rupee has depreciated against the US$ by over 30% in the year till now. Festive seasonal gold buying is yet far off which starts in India from August onward. The same oncoming festive season could potentially hike inflation due to demand for agricultural commodities if the rainfall remains dismal as seen till now. China’s retail jewelry market also remains lackluster, with no major festival in sight until early October.