Daily Nugget: India In U-Turn Over Gold?

The gold pice began to climb yesterday, for the first time this week, following Obama’s success at winning Congress’ approval for military action in Syria. Whilst some have argued on social media that gold has returned to above $1,400 because ‘fundamentally it should be’ there is little doubt that events such as war give cause for traders to buy gold.

It is also worth noting how gold reacts in relation to oil supply disruptions. Traditionally the gold acts as a hedge against oil-led inflationary pressures. Further tensions in the Middle East, therefore, should be bullish for gold.

Rupee weakens

In part thanks to concerns over oil prices, the Indian rupee continues to struggle, having lost 19.4% against the dollar since the beginning of the year it looks set to repeat the events of 1991 when it had to pawn gold bullion so as to support its currency.

Despite this, the war on gold appeared to halt yesterday as the India’s authorities decided to cut the import tax on the yellow metal following a fourth consecutive day of price declines. According to news agency PTI the gold’s import tariff has been reduced to US$458 from $461 per 10 grams.

In other gold news…

Holdings in the SPDR Trust have been recovering since hitting a four-year low in August. However they fell for the first time this month by 1.8 tonnes yesterday, but remain 10 tonnes above the recent low.

Turkey’s gold imports fell by 63% in August as higher gold prices weighed down demand. Only 13.66 tons were imported, the lowest amount since January according to Bloomberg. The country saw a 73% increase in jewellery demand when gold price initially fell in the second quarter.

Yesterday thousands of South African miners went on strike, in protest against wages and working conditions. Tensions remain high surrounding the issue given the resulting violence of last year’s strikes. The National Union of Mineworkers (NUM) the country’s largest union of its kind, is seeking a 60% pay increase for entry-level workers.

Whilst Syria seems to be the hot topic this week, there are other key events to look out for which will, no doubt, impact upon the gold price. Key this week is of course the non-farm payrolls data, but before we have three major central bank meetings – the Bank of England, ECB and Japan. Also look out for any announcements to come out of the G20.