After declining by more than 28 per cent in 2013, the New Year has brought much needed cheer to bullion traders, with the yellow metal surging by $56.2 per ounce this Monday morning since hitting an intra-day low of $1,186 last Monday, December 30.
In Dubai, the city of gold, one gram of 24ct gold was retailing for Dh150 at 10.45am UAE time on Monday, January 6, 2014, while 22ct gold was being retailed at Dh142.25 per gram and 18ct gold was going for Dh118 per gram.
Globally, the yellow metal is now surely inching up towards the $1,250 per ounce-mark, basking in renewed investor confidence in the metal even as the US Federal Reserve has initiated the tapering process for its now-infamous quantitative easing programme.
India’s central bank, Reserve Bank of India (RBI), partially eased restrictions on import of gold doré bar (semi pure alloy of gold and silver) by allowing refineries to import 15 per cent of their gross annual requirement in first two months and remaining as per export performance.
“Refineries are allowed to import doré up to 15 per cent of their gross average viable quantity based on their license entitlement in the first two months for making this available to the exporters on First in First out (FIFO) basis,” the RBI said in a communications to banks.
“Subsequent to this, the quantum of gold doré to be imported should be determined lot-wise on the basis of export performance,” the country’s central bank noted. The impact on the gold markets has been evident, with gold prices surging almost instantly in the wake of the announcement although there remain other factors at play.
“The first (and truncated) trading week of 2014 kicked off with gains for gold and silver, some of the biggest losers in 2013,” said Ole Hansen, Head of Commodity Strategy, Saxo Bank, in his weekly commodities report.
“As we enter the New Year, growth expectations are elevated with global manufacturing activity in December running at its best level since April 2011,” he noted.
The start of the new week has only added to that general bonhomie for bullion, with the metal up by more than $17/oz in early trade today (January 6), trading at $1,242 at 10am UAE time.
January has traditionally been a good month for precious metals, at least for the past three years, suggests data collated by Saxo Bank. “Will history repeat itself and result in another strong January performance for the fourth year in a row for key commodities such as platinum, silver and copper to Brent crude and gasoline? The early signs are supportive for the metals but often we have seen the price direction during the first few trading days of the year turn out to be the wrong one,” Hansen says.
The last few days of December proved to be a mixed bag for gold, as initial gains were quickly given away by traders looking to cover their losses even as the metal’s dip closer to the critical $1,180 level brought in solid physical support for gold.
“The yellow metal was on track for its best weekly performance since October not least helped by reduced selling appetite as a new trading year began. On the last trading day of 2013, sellers went looking for stops below the recent low at $1,187/ounce but the failure to breach the 2013 low at 1,180/ounce quickly attracted some buying interest and since then some additional buying has moved it back above 1,200/ounce and into relative safety,” Hansen said in the report.
If the start of the first full week of trading is anything to go by, 2014 promises to be a good year for gold as demand especially from Asia is expected to remain robust. “The buying so far this year has been most noticeable in Asian trading hours which has raised expectations that demand from the region will remain firm again this year,” Hansen believes.
“The premium paid for taking immediate delivery of gold in China has risen to $23 an ounce which is almost $7 dollars higher than the average during December and the lifting of some import restrictions on December 31 by the Reserve Bank of India could also spur renewed demand. Additional support has come from stabilising bond markets after the recent sell-off which resulted in US 10-year bond yields reaching a 2.5 year high,” he said.
“Speculative short selling by hedge funds increased almost four-fold by 5.7 million ounces during November and December and the failed selling attempt and the subsequent bounce will have rattled a few weak shorts and helped the rally along,” Hansen noted.
“Whether it will be enough to see the price move back above the key resistance at $1,268/ounce remains doubtful, also considering that flows in Exchange Traded Products have remained negative during the first few trading days of 2014,” he said.
However, with his report was published on Saturday, the metal has surged by about $17 just this morning, and a break above $1,268/oz doesn’t look as unlikely as it might have on weekend.