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Weekly Commentary

Written on 5th June, 2015

Headlines

  1. Reuters: Gold at 11-week low after U.S. data, set for 3rd weekly fall
  2. Reuters: Uncertainty over Greek debt crisis supports gold
  3. Money Control: NCDEX launches “Gold Now”- the new Indian national market for Gold
  4. Market Watch: U.S. stocks fall for third straight session
  5. Bullion Vault: Gold prices flat amid ‘extreme complacency’ over Greek debt crisis Bloomberg
  6. RCM: Canadian silver maple leaf sales hit new record q1 2015
  7. CFTC: Gold speculators slightly edged net bullish positions lower last week
  8. Sky News: Gold ends 3-day losing streak

 

 Weekly Commentary

Gold clung to small overnight gains on Tuesday on a weaker dollar, but the metal remained near an 11-week low as investors fretted over the timing of a U.S. interest rate hike after a strong U.S. jobs report boosted expectations of a U.S. interest rate rise in September.

The metal had fallen to $1,162.35 on Friday, its lowest since March 19, after data showed U.S. job growth accelerated sharply in May and wages picked up. Nonfarm payrolls increased 280,000 last month, the largest gain since December.

The report, indicating signs of strong momentum in the U.S. economy, bolstered expectations the Federal Reserve will begin to raise rates in September and sent the dollar to a 13-year peak against the yen.

With a stronger dollar and the imminent rise in U.S. rates again dominating sentiment, the short top medium term outlook for demand is looking low. The current bearish outlook is also confirmed with current investor positioning.

SPDR Gold Trust, the world’s top gold-backed exchange-traded fund, holdings dropped 0.17 percent to 708.70 tonnes on Friday, the lowest since mid-January.

Hedge funds and money managers cut net long positions in gold and silver in the week ended June 2, U.S. Commodity Futures Trading Commission data showed on Friday.

The next major support level for gold is around the March low of $1,142.

 

 

 Fundamentals

The National Commodity and Derivative Exchange (NCDEX) of India is attempting to standardize domestically refined gold with its launch of a new product last week, ‘Gold Now.’ The objective of this is to have a standard gold bar for facilitating physical trading through their exchange platform, which are T+1 and T+2 settled contracts.

Gold traded on their exchange platform can be either a LBMA accredited or gold refined by NCDEX accredited refiner. MMTC-PAMP is the only LBMA accredited refiner at present. The NCDEX accreditation has been received by the Shirpur gold refinery, Edelweiss Refining, and Kundan Group. Currently the deliverable contracts are of 995 purity and include kilo bars and 100 gram bars with six delivery centres across the country.

The current list of domestic accredited Indian refiners make up for more than country’s 50% of total refining capacity. Indeed, this one is very timely given the pace at which doré volumes to India is increasing year on year. The GFMS team at Thomson Reuters, world leading precious metal consultants, estimate at the current rate close to 160 tonnes of fine gold will be refined in India in 2015. These volumes are over and above the domestic scrap being recycled.

In addition, the launch of the gold monetisation scheme by the Indian government should further increase the relevance of such accreditation, with the standardisation of bars seen as a key challenge for industry participants. However, looking outwards it will now be more challenging for international refiners to sustain their volumes to India given the likelihood of a rapid rise in domestic supply.