Psst! Hot Gossip on Gold, China & India

February 19, 2014

Where Indian companies barely feature, Chinese gold players are making a move...

A BUSY OLD TIME in the bullion market for "unnamed sources".

People close to the matter apparently told the Wall Street Journal that India may cut its 10% gold import duty to 8% or 6% by end-February.

Other publicity-shy publicity-seekers meantime tell Reuters that Standard Bank is "the front runner" to buy Deutsche Bank's seat on the London Fix. The South African bank's commodities division is being bought by China's giant ICBC bank.

Now, the first bit of gossip speaks to the floor under gold prices. The second looks to how prices might be set to rise in the future.

That floor was built by emerging-market consumers during last year's crash. Indian households used to be the world's No.1 buyers of gold. China overtook them last year, but only on official data. Based on yesterday's new report from our friends at the World Gold Council, India's current account deficit (the gap between inflows and outflows of cash to the economy) may be $9 billion greater than the government's $45bn estimate for this financial year.

So any easing of the legal restrictions might give wholesale traders an excuse to nudge prices higher, but only short term. The loss of legal imports to India began in July. By then, gold had already hit its 2013 low of $1180 per ounce.

That second rumour, however, says the global price might start being set by China's private demand...rather than being simply accepted. We've guessed recently that China's looming debt bust will drive a chunk of this move. But we also guessed a month ago that ICBC might enquire about the price of Deutsche Bank's seat on the London Fix.

This might matter. Because if ICBC's newly-bought Standard Bank team do get a seat on the Fix, that would plug the world's biggest bank, based in the largest gold consumer and second-largest economy, directly into the heart of the global gold market.

No large Indian bank or wholesaler sits on the London Fix. Indeed, India has no full members of the London Bullion Market Association, and only six associate members.

The phrase "gold price", by the way, was China's fourth most common search term on mobile phones last year.
 

Adrian Ash

(c) BullionVault 2014

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash is head of research at BullionVault, the physical gold and silver market for private investors online. City correspondent for Bill Bonner’s Daily Reckoning from 2003 to 2008, and previously head of editorial at London's top publisher of private-investment advice, Adrian is now a regular contributor to many leading analysis sites including Forbes and Gold-Eagle, and a regular guest on the BBC as well as international broadcasters. His views on the gold market are frequently quoted by the Financial Times, Daily Telegraph, MarketWatch and many other leading new outlets.

 

The term “carat” comes from “carob seed,” which was standard for weighing small quantities in the Middle East.

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