The Gold Report: The gold price can't seem to climb back above $1,300/ounce ($1,300/oz) despite several geopolitical hotspots making headlines. What's underpinning the price weakness?
Raj Ray: The issue is that despite the geopolitical backdrop, the fundamentals still appear weak. The big drivers demand from India and China and gold exchange-traded fund shave been more or less flat year-over-year. China is still digesting the gold it purchased last year. And, although price premiums have declined in India following the recent Bank of India's move to permit trading houses to import gold again, further relaxation of the import tariffs is not forthcoming. If not for geopolitical conflicts providing support, gold could have moved much lower than $1,300/oz. I don't see a big driver to push gold higher over the next six to eight months.
TGR: India has imposed high tariffs on gold imports and those have resulted in a marked increase in gold smuggling. How is that influencing the gold prices?
RR: I don't think there has been a marked impact on gold prices in India due to smuggling. The World Gold Council says about 250 tons of gold are smuggled into India each year. If you add that to the official gold imports of roughly 800850 tons, you still have a shortfall of around 200300 tons based on average annual imports. What might be something to look out for heading into the wedding season is the rainfall and its impact on food production. Rural India accounts for 6070% of India's gold demand. The rainfall outlook has improved slightly, but a rainfall shortage could make the government reluctant to reduce the import duties anytime soon. It would also mean that people have less money to spend on gold.
TGR: You said China is still digesting its 2013 gold hoard. How long before China is consuming gold as it did in 2013? Continue reading "Miners' Cost Cutting Set to Deliver in Late 2014"