Nov 30 Swiss vote may hold key to gold prices
London (Nov 29) Gold prices have moved up in the last several days and ended the last week trading above $1,200 an ounce in the London market ($1,204 Friday PM Fix).
While macro indicators and investor inflows paint a bearish picture, the fundamentals point to firmness, in the short-term. The reason: market attention is now focused on the upcoming Swiss vote to decide whether or not to buy 1,500 tonnes of gold over five years, equivalent to 300 tonnes a year.
A positive vote will be a shot in the arm for bulls, who have helplessly watched prices collapse. However, the initial enthusiasm to buy gold is now waning in Switzerland, according to market watchers; yet, nothing can be ruled out. The vote is set for November 30 (Saturday); and one can safely expect gold prices to remain volatile until then.
If the Swiss vote in favour of gold reserves, it would provide a solid floor for prices to stabilise. However, emerging threats to the yellow metal cannot be wished away.
From a demand perspective, trade curbs being discussed in India to halt rising gold imports and foreign exchange outflows in the last two months could potentially weaken the floor.
According to Swiss trade data, India imported an estimated 75 tonnes in October, higher than the 58 tonnes in September.
The dollar continues to stay firm and given that the euro and the yen are poised to weaken, a strengthening dollar is sure to cap the upside for gold. The big question is the timing of the rate increase by the Fed. It could happen sometime next year, possibly in the second quarter. This move will hurt liquidity further and raise demand for greenback.
At the same time, crude prices have fallen and inflation expectations are muted. Outflows from physically-backed ETPs have slowed too.
So far this year approximately 150 tonnes have been redeemed; and the pace of redemption is slowing.
In sum, given the strong downside risk for gold because of weaker investor interest and robust macro-data, every increase in price may present a selling opportunity.