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Market Pulse December 2011

Euro crisis has created confusion and uncertainty in global financial system of late. Every single instrument in financial world is volatile resulting investors' nightmare. Even the precious metals, considered as ‘safe haven', are not delivering any sense of comfort. Gold and silver prices are going nowhere, trapped in a range, but, adding huge amount of volatility. Gold ETF buying is pretty robust, but at every high trader is booking profit, making bulls' job absolutely difficult.

In India, situation is absolutely chaotic. Depreciation of rupee has affected import cost high and we are watching gold prices ruling at historic high close to Rs.29,000/gm, when international gold price is comparatively pretty cheap. The country's economy is facing serious problem. RBI has kept the monetary policy extremely tight by revising 13 times last one and half years to fight the inflation, sacrificing the growth in the bargain. The marriage season has already started and at this high price common men can't afford to buy gold. Normally, people cut down the quantity within the stipulated budget. If it happens, then there would be serious pressure on market. Though few market players are optimistic that marriage season will create demand in the market as is evident historically irrespective of the price, few others are really pessimistic as economic slowdown and weak rupee will ultimately make ‘importers' job bizarre. Let's see what our experts feel about the market at present:-

Mr. Mayank Khemkahas expressed serious concern on economy. India's IIP, which has been under pressure in last quarter, showed the industrial secotor has shrunk for the first time since March 2009. High current account deficits, fiscal deficits have created serious concern on economic growth. GDP is expected to come down to 7%. Most importantly rupee depreciated 19% which pushed gold prices to almost same proportion. Consumers in India are paying additional premium on gold price because of this single event. Take a simple example. Gold hit $1930 in August in international market this year. But that time gold here in India was around Rs.26,000/10gm. Now international prices are around $1700 or below, but gold is Rs.29,000 here. This has been reflected on demand front as gold and silver demand dropped by 30% YoY in north India after ‘diwali'. He feels rupee will remain weak at least till the end of the current fiscal and there is a possibility that total gold imports will be less than the previous year.
Courtesy: Mr. Mayank Khemka, Khemka Group Of Companies, Delhi

Mr. Johnson Lewisfrom Scotia Mocatta revealed that the demand for precious metal was sluggish in the month of November. Historically, November is usually a lean month. Investors kept on selling gold between Rs. 29,000-30,000 during this month. Import was less comparatively previous months. Silver is relatively a confusing metal and at present there is absolutely no demand in the market.

On rupee, he feels that INR will depreciate further towards 54-55/USD till March, 2012. INR 50/USD will remain strong support. But he is optimistic about the investment and seasonal demand (marriage etc.). He says that historically demand during December to February remains robust irrespective of price. There is no sign of change in trend yet. Investment demand through medallion, gold biscuits, ETFs will remain robust, while marriage season will keep jewellery demand strong. On import side, he feels that import may again come around 900 tons this year. (Last year India imported around the same quantity). "I will be surprised if it doesn't happen", he concluded. Courtesy: Mr. Johnson Lewis, Scotia Mocatta, Mumbai

Mr. Chanda Venkatesh said very emphatically that silver prices cannot go high too much. It will stabilize around Rs.52,000-53,000. Gold will get support around Rs.28000-28,500. Euro uncertainty will play a pivotal role in fixing precious metal price. In November, import has come down as generally, November is lean month for precious metals. In Andhra Pradesh altogether 5-6 tons of gold imported last month while in silver it was around 10-15 tons. But he is confident that irrespective of economic problems demand for gold will peak up from December to February as traditionally it is peak demand season.

But he is bearish on silver on demand front compared with gold. As a matter of fact, investors lost confidence on silver as prices had fallen drastically from Rs. 75,000 to 40,000. Investors had burnt their hands already and so they are absolutely apprehensive at this point. Depreciation of rupee pushed the price of silver above 50,000, but investors are not yet fully convinced that prices will reach the precious level of Rs. 75,000 once again
Courtesy: Chanda Venkatesh, Caps Gold, Hyderabad

Mr. James Jose pointed out that jewellery demand has not picked up yet as it was in July or August. Buying is happening at slow pace as of now. But it is expected that demand will reach to its high end as the marriage season has already been started and it will remain till February. What is interesting to notice here that old gold or scraps are coming into the market at present as gold is trading at historic high price. Normally, South India consumes around 400 tons of gold every year. Tamilnadu is the largest consumer having demand of 150 tons followed by Kerala in a tune of 120-130 tons. Rest is consumed by Karnataka and Andhra Pradesh. Out of this total gold of 400 tons, around 65 percent comes to the jewellery segment. He opines that despite Euro uncertainty, LBMA gold price may not come down below $1600/oz. Rupee depreciation will keep the price here in India at elevated level. Until or unless really something unusual happened in Euro front, gold is expected to take support around $1600 odd level. What happens at the time of crisis investors love to hold cash in hand and they sell gold along with other assets? Otherwise, underlying demand for this gorgeous metal is strong and will remain strong days forward.
Courtesy: Mr. James Jose, Chemmanur Gold Refinery Pvt. Ltd., Cochin,

Dec 2011