Potential flashpoints for gold in 2013

While moderate gains are likely to be the name of the game for gold in 2013, there are number of events investors are going to be keeping an eye on.

Gold is likely to see moderate gains over the course of 2013 but there are a number of potential flashpoints that could change the game rather more significantly.

 Among these are – US monetary policy, events in China and India and the institutional investor sentiment toward the metal.

 In a note, UBS writes that, while there has been no significant change in US monetary policy and consensus views are for the Federal Reserve to “stay the course in terms of policy execution for now. UBS economists do consider potential for the Fed to begin scaling back its asset purchases towards the end of the year, but this hinges very much on this year’s economic growth performance.”

 It adds that, sentiment on the US economy’s growth prospects has picked up of late and this positive outlook is highlighted by the fact that the UBS US Growth Surprise Index is currently at its highest since 2005.

 “But,” it says, “there is no shortage of risks to the US growth story and the dollar, and gold is an obvious beneficiary should these risks come to pass.”

 Head of Precious Metals research at Credit Suisse, Tom Kendall agrees that US policy is critical, telling Mineweb.com’s Gold Weekly podcast that markets are likely to be even more focused on the monthly employment numbers out of the US.

 “We are in a critical period in the run-up to the negotiations over the US federal debt ceiling which is going to be hit again by around the end of February, and I think the US monetary policy is going to remain very much at the forefront of the investment community in gold,” he told Mineweb.

 He added: “You saw with the FOMC minutes from last week just how finely attuned the gold market is at the moment to the possibility of easing being scaled back by the Federal Reserve and just what a bearish reaction that could elicit in the gold market.

 Events in India and China are also expected to have an impact on the gold market this year. In India, the release of the Reserve Bank of India’s (RBI) Working Groups Draft Report on the gold industry is likely to dominate headlines over the next few months as it contains a number of proposals on how they might change the structure of the country’s gold industry and, in particular, the structure of their gold imports.

 According to Kendall, a lot of their proposals are unlikely to make it into policy and, those that do will probably be phased in over an extended period but, in the short term, most eyes are going to be on the import duties levied on gold.

 “There's been some speculation that the government is considering increasing the duty on bullion from four per cent to six per cent. Personally I would be surprised if that happens in the next couple of weeks, I would think that will be more of a policy change that would come through in the budget in March, but it certainly is a risk that the market is going to be watching,” he says.

 China too is in the process of changing fundamentally its gold market. As Kendall points out, there has been a steady deregulation and liberalisation of the gold market within China, and that is expected to continue.

 “We saw just before the close of 2012, the first official over the counter bank-to-bank trade done within China and the development of an inter-bank gold market there is important in developing liquidity.

There was a lot of talk of course about an exchange traded product look-alike being launched in China. I’m not sure that’s going to happen in the next two or three months, but it’s certainly a possibility for this year, and how that will be received by the Chinese investors will be very interesting,” he adds.

-Mineweb/GB