Will Asia's gold
bugs come to the metal's rescue? by Ansuya Harjani
| December 19, 2013
While Asian consumers have
been an important force in the gold market, helping to offset
the blow from heavy bullion-backed exchange traded fund
(ETF) selling this year, they may not rescue the precious
metal from its steep drop this time around, say analysts.
Gold prices fell over 2
percent on Thursday, breaking through the key psychological
level of $1,200 an ounce as speculation about the Federal
Reserve scaling back stimulus further heightened deflation
fears. Spot gold was last quoted up 0.3 percent at $1,193
in the Asian trading session.
"We have seen gold prices being supported
at current levels previously, and normally we would have
thought that would be the continuing story with emerging
market demand lapping up the excess supply. But what is
throwing a spanner in the works is India," Mike Harrowell,
senior resources research analyst at BBY told CNBC on Friday.
India, one of the world's top consumers
of gold, has imposed a wide range of restrictions to curb
bullion imports in an effort to control the current account
deficit. Earlier this year, the government hiked the import
duty on gold to a record 10 percent and tied bullion imports
to a fixed level of exports via the 80:20 rule. This rule
stipulates that 20 percent of all gold imported must be
exported before further imports can be made.
The measures have been effective in suppressing
demand, with gold consumption slumping 32 percent to 148
tons in the third quarter, according to the World Gold Council
While gold demand out of China and other
emerging markets in the region remain intact, this is unlikely
to help drive prices higher, said analysts.
"Those sorts of buyers tend to be
value [driven] and tend not to push the price very hard,"
Ric Spooner, Chief Market Analyst, CMC Markets
says the key question for gold is when ETF selling will
SPDR Gold Trust (:GLDIV.P-P), the world's
largest gold-backed ETF, said its holdings fell 0.48 percent
to 808.72 tonnes on Thursday from 812.62 tonnes on Wednesday.
"Over the next 12-18 months, - it's
hard to make a case for gold - we've got low inflation and
potentially a rising U.S. dollar (New York Board of Trade
(Futures): =USD) in the background of the Federal Reserve
unwinding its monetary stimulus," said Spooner, who
adds that a drop below $1,180 would be a "bearish development"
for the precious metal.
"But what plays at the back of my mind
is that it remains to be seen whether the world will exit
from the current round of major central bank stimulus without
inflationary pressure - that makes a case for potentially
owning gold, so we may find a base around $1,150-$2,000,"
According to Frank McGhee, head precious
metals dealer with Integrated Brokerage Services, the significant
rotation out of the metal into U.S. equities is likely to
going to continue through next year and drag prices lower.
He forecasts the precious metal will trade
around $900 by mid-2014 - marking a 24 percent decline from