(The opinions expressed here are those of the author, a
columnist for Reuters.)
--Clyde Russell is a Reuters market analyst. The views
expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, Jan 29 Gold's positive
start to the year seems to be based more on hope than any real
change to the factors that saw the precious metal shed 28
percent last year.
Spot bullion has gained 4.25 percent since the start
of the year to the close of $1,256.09 an ounce on Jan. 28, with
China and India factors helping to drive the rally.
The optimistic view for gold is that top buyer China will
continue to buy record amounts and that India, which was
supplanted by its Asian neighbour last year, will ease the
restrictions that crimped its demand last year.
Taking India first, and the gold bulls have taken heart from
comments on Jan. 27 by finance ministry officials that the curbs
on gold imports will be reviewed by the end of
India progressively hiked import taxes to a record 10
percent last year and imposed a requirement that 20 percent of
imported gold must be fabricated and exported.
The aim was to cut a ballooning current account deficit, and
gold, as the number two import by value behind oil, was viewed
the best target given its limited role in creating economic
Initially the gold market had shrugged off the Indian moves,
apparently believing that demand in the South Asian nation was
so strong it would overwhelm the government's determination to
reign in the current account deficit.
However, by the end of last year the measures had worked,
with imports being slashed to just 21 tonnes in November. This
was in a country that imported an average of about 80 tonnes a
month in the year to September 2013.
The hopes for a review of the measures has been sparked by
the likelihood that India's current account deficit is expected
to fall to about $50 billion in the fiscal year to March, down
from the record $87.8 billion the prior year.
However, this misses the point that having achieved some
measure of success in bringing down the deficit, the government
will be reluctant to allow to rise again.
It also should be noted that the Reserve Bank of India,
which enjoys a fair degree of autonomy from the government, is
the responsible agency for setting the rules on re-exporting,
and an official there has indicated it's unlikely to review its
rules until after the end of March.
The easing of the requirement to re-export would more than
likely have a bigger impact on India's gold imports than would
cutting the import tariff, but it would seem any decision on
this is several months away, and won't necessarily result in a
relaxation of the requirements.
Turning to China, and news that the Asian giant imported a
record amount of gold in 2013 from Hong Kong, the main transit
point for its purchases, boosted optimism that demand in the
world's biggest consumer remains robust.
China imported about 1,158 tonnes from Hong Kong last year,
almost double the 2012 total, as buyers took advantage of the
plunge in prices.
However, Chinese buying may taper once the Lunar New Year
holidays conclude early next month.
Retail buyers are likely to have already taken advantage of
the lower prices in 2012 and merchants are believed to have
At best, gold demand in China will hold up, but it's
unlikely that it will accelerate by much this year.
With Chinese demand likely steady and a large question mark
over India, gold will have to rely on other factors to keep its
nascent 2014 rally going.
While outflows from exchange-traded funds have slowed, and
some small inflows have been recorded, again this looks more
like a neutral factor for gold rather than a positive.
The jitters over emerging markets as the United States
tapers its quantitative easing may provide some support, but it
will also make buying U.S.-dollar denominated gold more
expensive for consumers in developing markets, given the likely
depreciation of their currencies.
Central bank buying, a key pillar of gold's 12-year rally
that ended last year, is also likely to remain broadly
supportive, but not so much that it will drive prices higher.
Overall, without rising Chinese demand and a return of
Indian buying, it's very hard to see gold rallies as anything
other than a selling opportunity.
(Editing by Ed Davies)