Uncertainties keep gold prices in check, no respite likely soon

Gold prices are down for a second week; 2 percent this week and 7 percent since demonetisation. Global gold prices hit a high of USD 1,338 on the US presidential election day and while many investors bet on the expectations of a run-up rally in gold post Trump's win, we are sitting at 9-month lows on gold, which is trading below Rs 1,200 an ounce. Indian prices are below Rs 28,600 per 10 grams and silver prices are down 11 percent since demonetisation.India, the second biggest consumer of gold has witnessed 86 percent of currency being demonetised at one go. The large denominations of note used to buy gold are out of circulation. The immediate rush to use the soon-to-be-illegit notes, led to a whopping USD 2 billion imports into India and then was soon followed by notices from excise department to 600 jewellers in the country. The trade since then has come to a near standstill. We are in the middle of wedding season in India, a time when the jewellery buying is at its peak. But with demonetisation and uncertainty on gold, this month seems to be ending in a lackluster mode. Good monsoons and the 7th Pay Commission which were seen as the strong reasons of good buying in gold have been overshadowed. What has taken over instead is fear and uncertainty and no sales in the industry. And the rumor mills have been working overtime with temporary gold import ban into the country, limit on citizen's holdings and check on bank lockers, among talks doing the rounds. Global market are very closely watching India for its gold demand, and the uncertainty brewing here is impacting the mood elsewhere too. Usually during times of uncertainty or financial crisis or when the fiat currency is seen devaluing, it is the gold and silver that have been known as a store of value, as the wealth which knows no boundaries. But for India that does not seem to be working. Turning attention now to the global cues which have seen the USD at 14-year highs like strong economic data, estimates of high spending plans, and possibility of rate hikes in December. This has led to further pressure on prices. For India in the meanwhile, the record high import duty, an upcoming Budget are also being discussed by the industry and add to that the GST – yet to be decided for Bullion. The uncertainty is here to stay for some time.