Precious Metals Preview: MCX Gold Back Above Rs 28K

Gold edged up from two month low amid bargain buying and strong Indian demand. Slight weakness in US dollar and a general wave of buying in commodities also acted as a positive catalyst for the metal. COMEX Gold edged up from lows under $1220 per ounce after enduring heavy losses earlier. MCX Gold futures recovered above Rs 28000 per 10 grams mark amid sustained pick up in retail demand.
Further drop in Gold prices could be limited from hereon though as Indian demand remains firm. After hitting a seven-year low in 2016, Indian gold demand recovered in the January-March quarter with a 15% jump in volume terms from a year earlier — albeit aided by a favourable base — while demand for the precious metal dropped 18% globally, showed the latest data from the World Gold Council (WGC). The growth in Indian gold demand value is even more impressive — 18% in rupee and 19% in dollar terms.
At the end of April, total holdings in gold-backed ETFs and similar products stood at 2,277.5t (73.2moz), 24.5t higher from March, World Gold Council (WGC) noted. These holdings were valued at US$92.7bn, 3% higher than a month earlier. North American funds attracted the highest level of inflows in April: holdings increased 25.4t (+2%) to 1,221.3t. European funds were marginally higher (+3.7t) to 946.2t. Asian funds lost 4.9t (-7%) to 62.8t, while funds in the other region added 0.4t to 47.3t.
Global gold demand dropped by 18% during the first quarter of 2017 to 1,034 tonne, mainly due to less inflow into exchange-traded funds (ETFs) and slower central bank demand, according to the WGC. The overall demand stood at 1,262 tonne in Q1 2016, according to the WGCs latest Gold Demand Trends report. Demand is down but that is largely because Q1 last year was exceptionally high. Inflows into ETFs were 109 tonne, down sharply compared to last years near-record inflows of 342 tonne. Central bank demand also contributed to the weakness with 76 tonne added to the reserves from 104 tonne in Q1, 2016. However, bar and coin investment was healthy and grew 9% at 290 tonne, while demand firmed slightly in both the jewellery and technology sectors.
Jewellery demand in the first quarter was marginally up at 481 tonne from Q1 2016.The report said the total supply went down by 12% to reach 1,032 tonne in the first quarter, compared with 1,175 tonne in the first quarter of 2016. The WGC noted that mine production of 764 tonne was little changed from Q1 2016 which was 768 tonne.
Gold took a tumble in first week of May 2017 after the Federal Reserve voted unanimously to leave its benchmark interest rate at 0.75% to 1%, but signalled another rate hike is imminent despite recent economic weakness. The Fed continues to project two more rate hikes in 2017, as the fundamentals underpinning the continued growth of consumption remain solid. Annual inflation is running close to the Feds 2% objective, policy makers said, although core prices excluding volatile food and energy prices were somewhat below the target.

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