Global Gold ETFs: Biggest Outflows In Three Months

An opportunity to buy or a danger sign? ETF Securities reports that global gold exchange-traded products such as the SPDR Gold Trust (GLD) suffered their largest outflows in three months last week. As that was happening, net speculative long positions in the futures market fell near April 2009 lows.

With gold futures down 1.7% to $1657 an ounce recently, the market is a-chatter about the strong dollar and the outlook for interest rates, though an Indian jeweller strike and weak data from China have also played roles. Traders are taking little consolation from Goldman Sachs’(GS) bullish view this morning, which repeated the bank’s call for gold to reach $1,840 in six months and $1,940 in a year.

Like Goldman, ETF Securities seems confident that the metal will keep its pace:

ƒ Global gold ETPs see largest outflows in 3 months as gold price fall shakes out short-term investors. Sustained gold price weakness and a pull-back in broader risk positions caused ETP investors to pare back gold holdings last week. Total global outflows amounted to around 0.7mn ounces or around $1.1bn at the current gold price. This compares to total gold inflows of around 1.7mn ounces ($2.9bn at current gold price) up until the previous week. The gold ETP selling coincides with a further large-scale clearing of speculative futures market positions, with the latest CFTC data (data to March 20) showing that net speculative longs in the futures market have dropped back down towards April 2009 lows (see positioning charts on page 4). The gold price decline and investor selling has been sparked by upward revisions to the US rate outlook (and related US dollar strength) as US economic growth has continued to improve. It appears that shorter-term investors, recognizing the near-term headwinds to further gold price gains resulting from current improving US growth prospects, are trimming positions. However, with real interest rates expected to remain structurally low in most reserve currency countries, sovereign debt and financial system risks still high and structural demand from emerging markets and central banks still in their early stages, it is unlikely the recent price declines will shake out longer-term gold ETP investors. With net long speculative positions now near April 2009 lows, a firmer base has been set for future long-term price gains.

Some key points from the Goldman report:

Gold prices remain too low relative to the current level of real ratesUnder our gold framework, US real interest rates are the primary driver of US$-denominated gold prices. However, after being remarkably strong in the first half of 2011, this relationship broke down last fall, with gold prices falling sharply in the face of declining US real rates, as tracked by 10-year TIPS yields. While gold prices have returned to trading with a strong inverse correlation to US real rates since late December, at sub-$1,700/toz they remain below the level implied by the current 10-year TIPS yields. The gold market’s expectation that real rates would be rising along with economic growth may help explain this valuation gap We believe that despite last fall’s decline in 10-year TIPS yields, the gold market may have been expecting that real rates would soon be rising along with better economic growth, leading to a sharp decline in net speculative length in gold futures. Accordingly, a simple benchmarking of real rates to US consensus growth expectations suggested a level of +40 bp by year end. Our models suggest this higher level of real rates would be consistent with the current trading range of gold prices. As we look forward, our US economists expect subdued growth and further easing by the Fed in 2012, which should push the market’s expectations of real rates back down near 0 bp and gold prices back to our 6-mo forecast of $1,840/toz.Subdued US growth in 2012 will likely support gold prices, although risks to our constructive view are rising We reiterate our constructive outlook for gold prices in 2012 and our 3, 6-and 12-mo forecasts of $1,785/toz, $1,840/toz and $1,940/toz, respectively. We acknowledge, however, that continued strong US economic data poses growing risk to our forecast for rising gold prices. Net, we reiterate our view that at current price levels gold remains a compelling trade but not a long-term investment, and we continue to recommend a long position in Dec-12 COMEX gold futures.

Chinese Copper demand will disappoint: Barclays

The current state of Chinese demand is varied across industries. The spot demand for copper in China is weak, the improvement in Q2 may be tepid and imports are likely to remain strong in March and possibly April before trailing off until later in the year.

Sentiment amongst Chinese fabricators and manufacturers is negative. Orders have been slow to improve following the Chinese New Year and in some sectors are below year-ago levels. Inventories of cathode at consumers are low, but inventories of finished product are higher than usual for the time of year.

Fabricators and some manufacturers increased production strongly in January-March in expectation of a pick up in demand during the seasonally stronger Q2. But, so far, demand has been softer than they expected. Bonded warehouse stocks of copper have continued to increase. Current copper bonded warehouse stocks is estimated to be around 600Kt, in line with the 2011 peak.

March and April copper imports could be stronger than the market expects. The metal that had been booked in October/November 2011, when the arb on six-month forward prices was open, will continue to flow into the country. It is also likely that we might see a pick up in exports. Chinese smelters have been delivering metal into bonded warehouses from which traders have been exporting metal onto the LME, attracted by the backwardation.

Overall, the Chinese demand in the short term is likely to disappoint before beginning on a recovery trajectory later in Q2. Subsequently, imports may weaken until bonded stocks are run down to more normal levels, possibly in Q3 12. With the market already expecting a drop in Chinese imports, it is doubtful that this alone would have a significant negative impact on LME prices.

That’s more likely to be determined by the market’s evaluation of how long imports will weaken for and whether it's the result of short-term dislocation or longer lasting core weakness. The LME backwardation meanwhile is likely to continue unless Chinese exports are big enough to begin offsetting the draws in LME inventories.

Source: Barclays Commodities Research report

India gold imports to fall 53% in 2012: Bombay Bullion Association

Indian gold imports is set to crash by over 50% in 2012 owing to high prices and increasing taxes imposed by the government, as per the Bombay Bullion Association (BBA). India is the world's biggest gold market and such a big fall in imports could effectively dethrone the country from being the leading gold importer in the world.

In a Reuters Survey, Prithviraj Kothari, President of the BBA estimated that 2012 gold imports could fall down to 450 tonnes, down 53% compared to 969 tonnes imported in 2011. “Last year we had good imports but looking at the pace of the fall so far we are heading for a big fall in 2012"

Meanwhile Q1, 2012 gold imports are seen down 56% at 125 tonnes due to Jeweller's strike and a slow season. "It is March, which is a lean period for jewellery business. Moreover the loss in sales incurred during the 10 days of ongoing strike by jewellers will hit imports. It is likely to be less than 125 tonnes in the January-March period,", The Press Trust of India (PTI) quotes Kothari. Q1, 2011 imports were at 283 tonnes.

The Indian government had raised the import duty on gold while also doubling the customs duty. This was seen as a move to control the influx of huge quantities of gold that has been putting a strain on India's fiscal deficit. Coupled with the current higher prices of gold, many analysts are predicting Indian demand to fall drastically.

And with the crashing Indian demand, China could overtake India to become the biggest gold market in 2012.

High Oil prices strain Gold mining companies, keeps stocks undervalued against Gold

High oil prices are squeezing the profits of oil companies who are already battling the headaches of high labour cost and higher taxes. And with gold prices stabilizing at the same time, some producers may just fell the heat until the yellow metal resumes its bull trend.

The high volatility in oil prices have forced gold companies to hedge their oil needs. Even the world's biggest gold producer- Barrick Gold- had to hedge oil prices considering the uncertainty in the markets. “As the oil spike relates to our cost structure, we've got things under control. But as far as what an oil price rise means to the broader economy, obviously we have some concerns there”, Reuters quotes Barrick CEO Aaron Regent.

Some analysts argue that high oil prices can dent the profits of gold miners even if gold climbs. And as the producer is forced to mine for lower grades, the company yields lower gold for every processed rock with energy costs remaining the same- and this situation of lower yields and higher input cost will inevitably lead to lower profits for the gold mining companies.

The market seems to have picked up on the reasoning as well as gold stocks have constantly underperformed gold prices for most of the gold's bull market- a period when input costs like energy, labour and other prices have been rising as well.

Chart showing performance of Gold (GLD etf) and Gold mining companies (GDX etf)

Gold Price Heads for 2nd Monthly Drop, "Uptrend Needs New Investment" as Saudi Arabia Tries to Talk Down Oil Price

The Gold Price retreated below last week's finish Thursday morning in London, heading for its second monthly fall in succession against all major currencies bar the Japanese Yen.

Italian and Spanish debt prices fell amid fresh bond sales and a national strike respectively, while Frankfurt's stock market fell for the 7th session in nine.

Crude oil slipped to a 1-week low after French prime minister Francois Fillon followed yesterday's news of a sharp rise in US stockpiles by saying the prospects "are good" for a joint Euro-US release of strategic reserves.

Down 2.0% in February, the Gold Price in US Dollars was trading at $1657 per ounce by lunchtime today – some 7.0% below the start of March.

Gold hasn't fallen for more than two months in succession since spring 2001 vs. the Dollar, autumn 2006 vs. Sterling, and mid-2007 vs. the Euro.

"The view that the US economic recovery is looking more sustainable is becoming increasingly accepted," wrote UBS analysts Edel Tully and Julien Garran in a new report on Wednesday, slashing the Swiss banks's 2012 average Gold Price target by 18% to $1680.

"Gold is at risk, for it needs persistent inflows of investor money to keep it on its upward trajectory."

"Investors need to put in well over $100 billion to the gold market in 2012 to keep prices high," said GFMS chairman Philip Klapwijk at a CME conference in Singapore today, quoted by Reuters.

Globally, Gold Investment demand rose 33% by Dollar value to $83bn in 2011, according to GFMS data.

Klapwijk forecasts a "short-term" drop in the Gold Price below $1600 per ounce.

New data today showed Russia selling down its Gold Bullion reserves for the first time in 5 years last month.

Slipping by 3.8 tonnes, Russia's gold reserves have doubled by weight since 2007 to 883 tonnes, and quadrupled as a proportion of its total foreign exchange reserves by value to 9.8%.

Figures from Data Explorers, quoted by CityWire, say that hedge funds and other investors have sharply increased their short sales of Gold Mining stocks, with 10% of Chinese miner Zijin Mining Group currently out on loan.

"Indian [gold] demand has been dead for 3 months," said a senior Swiss logistics executive to BullionVault on Thursday, as the strike by India's jewelry retailers protesting a hike in import duties to 4% by value entered its 14th day .

"Nothing's moving, everyone's waiting."

Jewelry demand in India – the world's #1 consumer market – "was reasonably positive" in the first two months of 2012, according to GFMS's Klapwijk, but the hike in India's gold import duties is denting sales.

"If the excise duty is corrected, the trade will be happy," MarketWatch quotes Bhargav Vaidya of the Bombay Bullion Association.

"The strike will not be indefinite, and customers will not go high and dry during [the key Gold Buying] wedding season."

Meantime in the UK – which the OECD today said has fallen back into recession – daily petrol sales jumped 81% and diesel sales by 43% on Wednesday, according to the Petrol Retailers Association, blaming Government minister Francis Maude for the "panic buying" by advising motorists to fill jerry cans ahead of a possible strike by tanker drivers next week.

More broadly, and with crude oil prices near all-time records in Sterling and Euros today, "It is the perceived potential shortage of oil keeping prices high – not the reality on the ground," says Saudi oil minister Ali al-Naimi writing in the FT today.

"There is no lack of supply. There is no demand which cannot be met."

"Used to be that Saudi Arabia produced more oil when it wanted lower oil prices," notes Olivier Jakob at Petromatrix. "Today, when Saudi Arabia wants lower prices it produces an op-ed in the Financial Times.

"It shows that you either do not want or can't produce more."

Also in the UK today, Bank of China Ltd applied for membership of the London Metal Exchange, the world's #1 base metals exchange.

BoC's UK commodities arm is the first Chinese-owned business to apply for membership. Barclays Capital reckons that China now buys some 40% of annual global demand for copper, aluminum and nickel.

In the last 3 months of 2011, Chinese households overtook Indian consumers as the world's top buyers of physical gold according to GFMS data, despite the Gold Price recording its second-ever highest quarterly average against the Yuan.

India to Review Gold Tax

But duty hike on Gold Bullion imports to stay...

IN A MAJOR reversal, India's government has said it will review the tax on unbranded gold jewelry, following 12 days of protests by gold traders across India, writes MineWeb's Shivom Seth in Mumbai.

Following an uproar in Parliament, the Indian government has stipulated that it will tweak the tax on gold jewelry but will not roll back the duty on gold imports,

The doubling of import duty on gold came in for severe criticism from opposition party members in India, during the debate on the Union Budget 2012-13 in Parliament. Allied political parties have joined the opposition members on the issue, in a bid to pressurize finance minister Pranab Mukherjee to consider a rollback.

Following the nationwide strike by jewelers, former finance minister Yashwant Sinha pressed for a rollback of the excise duty on non branded jewelry and called for doing away with the requirement of a PAN card to Buy Gold jewelry worth $3936 (Rs 2,00,000).

PAN or Permanent Account Number refers to a ten-digit alphanumeric number, issued in the form of a laminated card, by the Income Tax Department in India. It is a must to have a PAN number for all those who file their income tax returns. The recent budget has stipulated that any transaction at the jewelers over $3936 would necessitate a PAN card. Sinha has called for the practice to be abolished.

The budget proposal to include unbranded jewelry in the ambit of 1% excise duty on branded jewelry has led to protests and strikes by bullion dealers. Replying to Sinha, Pranab Mukherjee told members of Parliament, ``I understand the plight of small jewelers and an acceptable solution will be found. There is no intention to harass anyone. The argument was that all states were charging value added tax. When you can pay value added tax, you can easily pay excise duty. But let me assure that I am considering it.''

Key political ally DMK joined the opposition members in demanding a rollback of the hike. Participating in the budget debate, DMK leader Kanimozhi said, ``The increase in import duty on gold to 4% is bound to add pressure. It will lead to smuggling.'' Higher import taxes on gold would affect demand in India, where households view the precious metal as a saving instrument, she said.

In Parliament, the issue was raised by different political parties – Arun Jaitley from the BJP, Sukhendu Sekhar Roy of the TMC and Tapan Sen of the CPI (M). West Bengal's industries and commerce minister, Partha Chatterjee, and TMC members have written to the Centre asking for a review in customs duty on gold and excise on jewelry.

While agreeing to reconsider some of the tax proposals on unbranded jewelry, Mukherjee reiterated his resolve to bring jewelers under the tax net under a new formulation. He also made it clear that he needed more time to study the legal implications of whether or not it would come into force immediately.

"I know it (gold) is part of our culture...but the import of gold of such magnitude strains balance of payments and affects exchange rate of the rupee through impacting supply-demand balance of foreign exchange,'' Mukherjee told Parliament members. He expressed concern over the out flow of precious foreign exchange on the import of ``dead assets that cause problems in the country.''

Referring to gold mined in India, he said, the quality of the country's gold bearing ore was ``extremely poor'' and as a result, it was uncompetitive to mine such ore to produce the precious metal indigenously.

India has around 30 gold mines. Each tonne of Indian gold bearing ore yields only 22 grams of gold, Mukherjee said, adding that experts opine that unless each tonne of ore does not produce 45 to 50 grams of gold, then the exercise becomes uncompetitive.

India produces around two tonnes of gold a year against the imports of 900 tonnes, he added.

Though the government has said there will be no step down from the import duty hike on gold and platinum to 4%, the government's proposal "to come out with an acceptable formula'' has left jewelers undeterred in their fight for a rollback, with most deciding to continue with the strike.

Jewelers in Nashik, Maharashtra have decided to continue their strike indefinitely. A decision in this regard was taken at a meeting organized by the Maharashtra Gold Jewellers' Association in Mumbai.

A delegation of the All India Gems and Jewellery Trade Federation recently met the All India Congress Committee member Digvijay Singh, who has assured the delegation that he would discuss the matter with Congress president Sonia Gandhi and Prime Minister Manmohan Singh.

Bachhraj Bamalwa, chairman of the Federation which called for the nationwide strike said members would continue with their demand to roll back the import tax hike.

"Though the finance minister has shown optimism in his speech, we will continue with the strike and will open our shops only after the excise duty and tax on cash purchase are rolled back,'' said  Zaveribhai Shah, president of the Jewellers Association, Ahmedabad.

US gold and copper slide as dollar steadier

NEW YORK, March 29 (Reuters) - U.S. gold futures slipped

Thursday as the dollar recovered and copper eased more following

its weaker performance in the previous session.

       
     FUNDAMENTALS
     * Gold prices slipped under $1,680 an ounce, extending a
fall from 2-week highs into a third session as the dollar
recovered from near a one-month low and crude oil values turned
lower.
    * Copper was off following a 2 percent fall in the previous
session although doubts over demand in China and the pace of
economic recovery in the U.S. made investors cautious.
    * China's Minmetals Resources plans to use its C$1.3 billion
Anvil Mining acquisition as a platform to buy more copper assets
in central and southern Africa.
    * South Korea's Hyundai Steel expects the steel market to
recover in the second half of this year led by a pickup in
automobiles and construction despite high oil prices, weak
Chinese demand and euro zone debt issues.

    ECONOMY
    * Germany's March unemployment rate fell to 6.7 percent from
6.8 percent in February.
    * The March euro zone economic sentiment index fell 0.1 to
94.4, compared with the expected 94.6.
    * Final fourth quarter U.S. GDP at 0830 EDT (1230 GMT) is
seen unchanged from the second estimate at 3.0 percent.
    * U.S. initial jobless claims at 0830 EDT are expected at
350,000, up from last week's 348,000.
         
    MARKETS
    * Global stocks dipped after disappointing U.S. data
tempered the outlook for the world's biggest economy while the
price of oil stabilized following some sharp losses.
    * The euro fell against the dollar as concerns about
contagion from the euro zone debt crisis overshadowed a solid
Italian bond auction.
   
 Prices at 7:17 a.m. EDT (1117 GMT)                      

                               LAST      NET    PCT     YTD
                                         CHG    CHG     CHG
 US gold                    1655.60    -2.30  -0.1%    5.7%
 US silver                   31.825   -0.006   0.0%   14.0%
 US platinum                1635.40     0.20   0.0%   16.8%
 US palladium                647.50     0.15   0.0%   -1.3%
 US copper                   377.05    -2.20  -0.6%    9.7%