Gold prices seem to be anything but sluggish recently based on the fact that the rise of the dollar has made gold prices higher in most other currencies and as the expected support from some of the most powerful economies on the planet which include China and India has been lukewarm especially after the monetary policies of the United States and inflationary pressures in Europe drove prices of gold to higher levels late last year. The commonly expected trigger for buying from Asian gold consumers did not materialise as expected this time around largely due to the huge gold reserves that these countries had already stockpiled and were able to satisfy gold demand. These countries were proactive in the sense that they not only managed to stockpile when prices were low, but they also had a clear line of sight towards the amount of gold they would be able to produce domestically from mining activities and current prices that hover at about 1,600 AUD were simply unattractive enough for Asian consumers who preferred to make a move on capital markets within the region that promised higher returns.
Latest reports however indicate that Indian consumers will drive the import of gold higher due to the rapid increase of the middle income segment especially during the festive seasons which is also the reason that the Indian government moved to lower the exorbitant duties that previous law makers had imposed. Bloomberg reported that ‘the lowered taxes imposed on the Indian consumers would increase gold buyers interest in the region, which would be a catalyst for increasing the value of gold to a higher position that would be strong enough to turn the market around and allow heavy selling to take place”. The price of gold has been driven up and down by both China and India with a force that is considered to be equivalent to that of the US dollar and Fed Rate Hikes. This is largely attributed to the robust economy of these countries and the enormous buying power of the population collectively, if these two countries do not make a move on prices of gold it is most likely that the prices of precious metals would likely to remain stagnant for longer periods of time. This situation is expected to turn around according to most experts as statistic reveal that 16 million Indians stand to lose their jobs if the current duties imposed on gold imports is not reduced or removed altogether. The mathematical equation is simple – as far as the Indian market is concerned there isn’t enough precious metal (especially gold) to go around sustaining the jewellery industry firstly and secondly for those who invest in gold.
European Gold investors eager to let go of their bullions have also been met with disappointment as the Asian market did not respond to the drop in price, this will likely to drive prices further down the line until the Asians decide to make a move buying out fast enough before prices start moving up again. Eventually when selling starts on the Asian side the prices will easily be more than the current 1,600 AUD which would give the Asians plenty of margins. The first move is expected to be from India during their festive towards the middle of the year with prices expected to go as high as 1,700 AUD and not a penny more according to James Steel an analysts from HSBC. The fact that the dollar gained on the Euro pretty significantly has made gold expensive for these markets as well and therefore the buying will not pick up pace in this region as it would have if the dollar had remained status quo.