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Gold Inches Up Ahead Of EU Summit
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Gold has lost some of its safe-haven appeal after financial market turmoil caused by the prolonged debt crisis in Europe and the US Federal Reserve's decision to take only a modest step to boost the economy forced investors to cash in bullion to cover losses.
Wall Street investment bank Morgan Stanley on Thursday lowered its precious metals price forecasts for 2012 through 2014, saying the move was in line with the bank's cut in its global commodity price forecasts.
Gold added $2.45 an ounce to $1,576.85 by 0602 GMT, having briefly risen above $1,581 on Wednesday on bargain hunting. The metal is on track for a more than 5 per cent drop this quarter.
"I don't expect too much coming out (of the summit). It's still a long way to go. I don't think it's easy to solve," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong, adding that there was a possibility Greece would eventually leave the euro zone.
"I think people are still buying the US dollar because I think gold is fluctuating. I think the US dollar is still more popular for the time being."
European Union leaders remain unusually divided ahead of a two-day summit that begins on Thursday over how to stem the bloc's spreading debt crisis, now in its third year since it began in Greece.
US gold for August delivery was hardly changed at $1,577.50 an ounce in thin trading.
Shares in Asia rose on Thursday on stronger-than-expected US durable goods orders data and the euro was steady ahead of the EU summit, although it was still within easy reach of this week's trough around $1.2441.
German Chancellor Angela Merkel will pit herself against France and Italy on Thursday at the summit that could shape the euro zone's future, insisting they must put the bloc's fundamental problems ahead of pleas for emergency action.
Gold touched a record of about $1,920 an ounce in 2011, when investors turned to the metal as a safe haven during the debt crisis in Europe. But this year, it has tended to move in tandem with riskier assets such as oil and equities, falling to its lowest in more than four months at $1,527 in mid-May.
"These reforms and relief efforts for troubled governments are doomed to fail, and it would be better for these states to radically restructure sovereign debt now and exit the euro," said Peter Morici, an economist at the University of Maryland.
"Continuing the charade that their situations can be saved will only make the pain worse later."
The physical market was deserted ahead of the summit, with premiums for gold bars in Singapore unchanged at between 50 and 70 US cents an ounce to spot London prices, and 70 cents and $1 in Hong Kong.
Weaker local currencies are weighing on gold demand from India, the world's largest consumer of the precious metal, and Indonesia, another leading Asian buyer, as traders also favour cash on concerns over a deterioration in the euro zone crisis.
India Gold Demand
India's gold imports could pick up in the second half of 2012 if record prices ease but annual volumes will still fall about 30 per cent after a tax hike, which could crimp demand until 2014, the head of Mumbai's gold trade association said.
Imports could hit 300 tonnes in the second half, up from 250 tonnes in January to June, if local prices steady around 30,000 rupees for 10 grams, said Prithviraj Kothari, president of the Bombay Bullion Association, keeping the annual fall to just 30 per cent.
Volumes are likely to stay flat in 2013, he added, as the impact of a doubled import duty continues and there are fewer festival days for traditional gift-giving.
"I think 2012 and 2013 should be dull," said Kothari, whose association groups about 400 jewellers and bullion dealers.
India doubled its import duty on gold to 4 per cent in March in a bid to reduce the value of imports and ease its current account deficit, helping to slash first-half imports by 58.7 per cent to 250 tonnes.
"The only change has been the sentiment because prices are at an all-time high and the rupee has depreciated," said Kothari, who wore a gold bangle and a chunky diamond ring.
A fall in the rupee currency to record lows has driven domestic gold prices to peaks above 30,000 rupees for 10 grams, but international dollar-denominated gold prices have sunk, keeping Indian investors wary.
"I am still bearish (on gold) ... US elections are there so the dollar would be strong," said Kothari, speaking at his office, located in a building called "Bullion House".
Kothari expects gold prices to fall to test support as low as $1,400 an ounce this year, down as much as 11 per cent from current levels, on a flight to safety in the dollar.
India's 2012 imports will also depend on the monsoon rains, which bring better yields, production and profits to farmers, who often invest in gold due to a lack of banking facilities. About 60 per cent of gold demand comes from rural areas.
High domestic prices are spurring recycling of gold, with Indians remaking their old jewellery, and volumes could rise to 300 to 350 tonnes this year, up 169 per cent on a year ago, Kothari said.
The government wants to cut gold imports to $38 billion in the fiscal year to March 2013, down 38 per cent on the year, to help rein in a bulging current account deficit. Imports during April and May were down $6.2 billion.
Kothari expects 2013 import volumes to be flat on this year but 2014 should see a pick up to record levels of 900 to 1,000 tonnes as spending in an election year puts more money in the hands of consumers.
"2014 would be good for the Indian economy, Indian purchases (of gold)," he said.
In the last general election in 2009, candidates spent 100 billion rupees -- about $1.45 per person but more than double outlays in the 2004 election, according to the non-profit Centre for Media Studies (CMS).
Kothari is more bullish on cheaper silver, driven by heavy usage of the white metal in the solar industry, and expects prices to almost double to $50 an ounce in a two-year period.
"I am more bullish on silver compared to gold ... If I have money, than I'll buy silver instead of buying gold as it is cheaper," he said.
"There will be maximum use of silver in the solar industry. That will be the main reason (for the price rise)," he added.
Silver is also used in industries such as photography and mobile phones, apart from jewellery consumption. The price of silver has dropped 22 per cent since the start of March, versus a fall of 6.9 per cent in the price of gold.
"Women have made more returns than men by investing in jewellery ... men have lost all their money in shares, and everywhere else," said Kothari.