Commodity Update; Gold – 18 November 2014

Gold continues to recover; further upside in doubt as India moves to curb gold imports

Gold held stable at earlier highs throughout much of last week as investors waited with bated breath for European GDP and US retail sales figures on the Friday.

While each of the above survey releases eventually met or surpassed estimates, geopolitical risks and lingering concerns over some of the world’s more problematic economies saw gold rally once again in late Friday trading.

Although concerns over global growth and stability remain valid, the road ahead for gold over the remainder of the week is clouded with uncertainty.

On the one hand both analysts and investors are widely anticipating the most recent FOMC meeting minutes, due for release on Wednesday, to show policy makers adopting a more dovish stance toward the outlook for the global economy; which would be positive for gold prices.

On the other hand the Indian government is widely expected to announce fresh curbs on gold imports this week as part of a bid to contain the nation’s spiralling trade deficit. With October imports of the metal exceeding $4 billion, roughly 30% of the deficit, further import restrictions are the “low hanging fruit” when it comes to measures designed to reduce the deficit.

While it is not certain that the government will go ahead with the additional curbs, or whether these would actually prove effective at limiting imports given the ease with which the metal can be smuggled, it is likely that gold prices will suffer on the back of any such announcement.

This is because the nation is the world’s second largest gold consumer, with October imports accounting for 20% of net purchases globally during the same month according to data from the London Bullion Market Association.

In short, while there is good reason to think that gold presents an attractive opportunity to hedge growing uncertainty over global growth and stability; there are also good and valid reasons to be remaining on the sidelines.

Accordingly, we hold a neutral position on the likely trajectory of the metal in the immediate future.

Spot Gold // Hourly Intervals

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