Global Central Banks purchases most gold since 1964

According to data released by World Gold Council, the central banks added 534.6 tonnes of gold to reserves in 2012, the most since 1964.

It is also expected that more than 250 tonnes will be bought again in 2013 and 2014.

The WGC also says that central banks are increasing purchases of gold, yen and china’s currency to reduce their dollar and euro holding as a percentage of total reserves.

Dulf market fall again

Gulf Cooperation Council (GCC) stock markets were down again in June as investors engaged in a round of profit-taking ahead of second quarter results, according to a study by Markaz, a leading asset management and investment banking institution.

The S&P GCC lost 2 per cent after shedding 1.7 per cent in May, brining losses to 3.63 per cent. Abu Dhabi was the only market to see a gain, up 2.46 per cent, while the largest decline was in Kuwait’s weighted index with a loss of 3.2 per cent, says the research noted by Markaz. Liquidity was down across the board, except in Bahrain. GCC value traded came in at $26.7 billion, down 32 per cent month-on-month basis, due to declines of 33 per cent and 43 per cent month-on-month for Saudi Arabia and Kuwait, respectively. The report further said that for the first half in 2011, GCC value traded was at $194 billion, a 10 per cent year-on-year growth and 65 per cent of the total for 2010. For the second quarter of 2011, value traded was at $103 billion, 10 per cent higher than the second quarter of 2010. Risk in the GCC (as measured by the Markaz Volatility Index – MVX) was up 21 per cent in June, but registered a 60 per cent decline in the second quarter. MVX Saudi had the highest monthly increase, up 39 per cent, while MVX Qatar declined the most, down 18 per cent. Global markets review World markets were negative again in June as Greek debt woes continued to plague investor sentiment. In the United States, economic growth for 2011 and 2012 has been revised downwards to 2.8 per cent and 3.5 per cent, respectively, according to Federal Reserve. The debt ceiling issue is also on the table with politicians required to reach an agreement by August 2. Euro-area inflation has remained stable at about 2.7 per cent with an indication that tightening is on the way. Stress tests on the area’s banks is expected to show a failure rate of 16 per cent with the European Systemic Risk Board (ESRB) showing growing concern that the sovereign debt crisis could spill over into the continent’s banking system. Crude oil was down 3.56 per cent after the International Energy Agency opted to release 60 million barrels of reserve oil to counteract lost Libyan production despite Saudi Arabia pumping an average of 9.5 million barrels a day.

Gold demand spikes, suppliers surprised

Demand for gold in the world's biggest consumer is picking up ahead of festivals that begin next month, but an earlier-than expected spurt in buying has led to a supply glitch as overseas sellers are understocked, bankers said.

Demand for the precious metal is subdued during June and July as rural consumers, who account for 65 percent of India's total gold consumption, prefer to divert funds to buy seeds and fertiliser during the sowing season.

However, a sharp drop in prices as a result of weak U.S. inflation numbers triggered buying, taking sellers by surprise.

A couple of them are now taking seven days to supply gold, this problem exists with some of them, so we prefer to buy from those who will deliver us promptly, said a official with a state-run bank dealing in bullion.

Indian gold demand is set to pick-up for the busy for the festivals, starting with Raksha Bandhan on Aug 24, and extending till Dhanteras in November, the single-biggest gold buying day.

There was less demand in May and June, but due to a price fall in July demand rebounded, creating supply constraints, said another official from the state-run bank, which imported 40 tonnes of gold in the last fiscal year.

Gold struck a two-month low on $1,175.35 an ounce on July 20, a level last seen on May 21, prompting traders to stock for the upcoming festivals. The yellow metal was trading at $1,197.35/1,198.35 on Friday.

Monsoon time sees lower inventory levels with suppliers, but this sizeable correction created demand in the market, which suppliers and refiners were not ready for, Pinakin Vyas, assistant vice-president treasury with IndusInd Bank, a large gold importer.

Gold demand picked up on a good note at the beginning of the year but slackened as the year progressed with gold prices hitting all-time high of 19,198 rupees on June 8.

This year analysts forecast higher prices at the end of third quarter on the back of heavy buying overseas on concerns about economy, with Indian prices following suit.

The demand has been good even before festivals and buyers are very receptive at lower levels, if prices sustains these lower levels below $1,180-1,190, I see the current trend going ahead, said Lokesh Kumar Agarwal, chairman, Brijwasi Bullions and Jewellers, which caters to markets in Uttar Pradesh and Bihar.

On Friday, gold on Multi Commodity Exchange (MCX) was at 18,345 rupees per 10 grams, up more than 22 percent on year.

FIIs to pump $25 bn into India: PMEAC

The Prime Minister's economic think-tank today projected foreign investment in Indian capital markets to fall to USD 25 billion this fiscal from USD 32 billion in the previous year, even as it expected India to remain a lucrative destination for capital inflows.

"During 2010-11, there will be portfolio capital inflows of USD 25 billion, down from USD 32 billion in the previous fiscal," the Prime Minister's Economic Advisory Council Chairman C Rangarajan said while releasing the Economic Outlook 2010-11 report.

Rangarajan attributed the estimated decline in FII inflows to robust inflows in the previous year, after these investors withdrew money from Indian capital markets in large sums due to the global financial crisis.

However, portfolio investment in the next fiscal will again rise to 35 billion dollars, the PMEAC said.

Rangarajan said amid uncertainty in the western world, India remains an attractive destination for capital inflows, with the country's economic growth expected to be 8.5 per cent this fiscal and 9 per cent in the next financial year.

This will lead to rise in foreign direct investment (FDI) to USD 50 billion this fiscal from USD 31.7 billion in the previous fiscal. This will further increase to USD 55 billion in 2011-12.

FDI is supposed to be longer term investment by foreign investors, while portfolio investment is generally expected to be volatile.

The higher FDI inflows, along with larger inflows through external commercial borrowings and other debts, would more than make up for the decline in portfolio investment this fiscal.

As such, the total foreign inflows have been pegged at USD 73 billion this fiscal from USD 53.6 billion in 2009-10, which would further increase to USD 91 billion in 2011-12.

The strong capital inflows will ensure that the current account deficit (CAD), which swelled to USD 13 billion in January-March, would be managed comfortably. CAD refers to the deficit in external merchandise and services trade, besides investment income flows.

After covering for current account deficit, foreign capital inflows will add USD 30.9 billion to forex reserves this fiscal from USD 13.4 billion last fiscal. In the next fiscal, forex reserves will go up further by USD 39.8 billion through capital inflows.

"This (capital flows) would be adequate to finance the large current account deficit in the two years and leave a modest USD 31 and USD 40 billion (2.0 and 2.4 per cent of GDP) to be absorbed in the foreign exchange reserves," it added.