The gold price has climbed above $1,350 to its highest in over five months, and is holding its ground this morning, following reports that Ukraine has begun military drills as Russia strengthens troops’ positions in the Crimean peninsula.
Barclays have warned that the price of gold is vulnerable to a rebound in the US dollar, should the geopolitical risk of conflict between Russia, Ukraine and the West subside.
The referendum, due to be held on Sunday, over whether or not Crimea will secede from Ukraine to join Russia, will likely prompt further buying due to uncertainty over the outcome. It is unlikely that speculators will want to be short gold over the weekend. At present there is an air of calm over the Ukraine situation, however gold is gaining bids on the back of beliefs that a storm is brewing.
India’s protests over physical gold
Despite the gold price rising and ETF inflows continuing, physical demand is letting the side down in both China and India. In Shanghai, physical gold is trading at a discount to spot prices, of around $3. At the same time, Pakistan is upholding a ban on gold imports until March 31 in an effort to help India deal with its gold smuggling problems.
In protest over the restrictions on gold imports, jewellers and retailers in Maharashtra, Gujarat and certain pockets of South India went on strike on Monday. According to Mineweb the call to strike came from the Bombay Bullion Association, and the India Bullion and Jewellers Association.
Mineweb reports, ‘”Our call for a strike was to protest against the government policies. It was hugely successful, as bullion traders in Mumbai, Gujarat and even Kolkata observed a shutdown,” said Association president Mohit Kamboj.
‘Prithviraj Kothari, director of the Association said they had compiled a list of demands that included reduction of customs duty on gold, from 10% to 2%; revision of the 20:80 import scheme for exporters; and the relaxation of `Know Your Customer’ norms, which had severely brought down sales at retailers.’
Gold to $5000/oz
Charles Oliver, gold and silver portfolio manager, is making headlines this morning following an interview comment that gold could (“within a few years”) move to $5,000/oz.
“Ultimately, I believe that the gold price could reach $5,000 within a few years, and perhaps go well beyond. Deficits and rising debts, exacerbated by demographic issues, are here to stay. And money printing and higher gold demand along with them.”
Mr Oliver warned investors of the importance of holding physical, allocated gold:
“One day, we might see someone try to break the market on the physical side, by demanding delivery of more tons than can be supplied – hence driving the price up.
“Because of this threat, I would tell investors in the metals to stick to ‘fully-allocated’ products, where you have a claim to a specific amount of metal that is physically held in a vault, not lent out or hypothecated.”