Expert Zone
Straight from the Specialists
Bear market a golden opportunity to shore up coffers
(Any opinions expressed here are those of the author and not of Thomson Reuters)
The recent run of the gold bears in financial markets has been positive for India’s current account balance. If this continues along with the persistent softness of oil prices, as many expect at least for the short term, it just might give the government the opportunity it needs to implement certain measures that have so far run against popular sentiment.
The plunge in the gold price since the start of the year, triggered by speculation and hints that the U.S. Federal Reserve may trim its bond-buying program sooner than markets had assumed, has helped the rupee hold up well against the dollar. This is good for India’s fiscal house, where the trade and current account deficits are more or less permanent fixtures.
Because gold accounts for just over 10 percent of India’s import bill — the second-largest import item after oil, which accounts for a little over 30 percent — a meaningful drop in the gold price, such as recently, eases the trade deficit. This is assuming the cheaper price does not trigger Indians to buy more gold. In the last two years, the steady rise of the already high gold price pared down local demand by roughly 10 percent a year in volume terms.
A lower trade deficit improves a country’s trade balance, and if it is achieved through lower imports, it also supports its currency and ultimately its current account balance. For India, this implies that it gets to keep more funds to finance domestic investments. However, commodity prices can be fickle, and gold is no exception. In fact, UBS expects the gold price to modestly recover in three to six months.
Gold not a good investment for now
(Any opinions expressed here are those of the author and not of Thomson Reuters)
Since November, the price of gold has been unstable but in April, its decline was precipitated. What is surprising is not the fall itself but its speed. In just two sessions, gold prices dropped 13 percent in the steepest fall in 33 years. It wasn’t gold alone that got caught in the bear grip. Prices of other commodities such as silver, crude oil, copper and so on also declined, but not as sharply.
What has happened to gold?
(The views expressed in this column are the author’s own and do not represent those of Reuters)
Gold has disappointed, down 4 pct over the last 4 weeks, despite the risk-related Brent crude oil advancing 3 pct. Gold appears to have become the victim of a steadily improving global macro environment, where the pressing problems and risks of 2011 appear to be easing, if not being resolved. Slowly the market appears to be building a consensus that the growth outlook for 2012 looks more positive. Consequently gold’s ‘safe-haven attraction’ is starting to lose out to more growth oriented investments.
The biggest shift in gold’s fortunes has come from the U.S. After the gold price advanced 7 pct in February on the back of the U.S. Fed Chairman’s January 25 hint of another round of quantitative easing (QE), the March 13 FOMC statement appears to have triggered gold’s fall. While the statement did not contain an overt change in sentiment, it did acknowledge a better growth profile despite the continuing risks. Its ‘less wary’ tone suggested that QE possibilities were minimal.
Gold prices: Bubble or fundamental
(The views expressed in this column are the author’s own and do not represent those of Reuters)
Suddenly all eyes have turned to the yellow metal. Some say that it’s a bubble while others give a lot of demand-supply reasons. Fall of the dollar and other economic reasons suggest that it has miles to go.
The golden bubble?
(The views expressed in this column are the author’s own and do not represent those of Reuters)
The spot price of gold crossed $1500/oz on April 22 and confirmed the belief that gold and, even more so, silver, are the best investments. In the last one year, gold gave a return of more than 30 percent; equity (Sensex) a mere 10 percent.
