Central banks may be forced to sell gold; India at risk: Chris Wood

According to reports, official gold reserves in India totaled 653 tonnes at the end of March 2020, while those in Saudi totaled 323 tonnes.

There is a growing risk of liquidation of gold in India caused by a lockdown-triggered collapse in economic growth, wrote Christopher Wood, global head of equity strategy at Jefferies in his weekly note to investors, GREED & fear.

The potential for forced selling in gold, Wood believes, could come from central banks given the dramatic fiscal deterioration being suffered by many countries. India, he said, is at risk given its substantial gold holdings.

“Another potential seller is Saudi Arabia where fiscal pressures caused a draconian threefold increase in the value-added tax (VAT) rate to 15 per cent and the suspension of cost of living allowances,” Wood said.

Given this backdrop, he feels gold prices may not break the $1800-1900 level in a hurry. “Still what investors should remember is that when gold finally takes out the 2011 high of $1921/ounce, it will be the proverbial ‘blue sky’,” Wood wrote.

According to reports, official gold reserves in India totaled 653 tonnes at the end of March 2020, while those in Saudi totaled 323 tonnes.

Bearish on banking stocks

The growing pressure on banks to offer and even extend the moratorium on payment of installments seems to have Wood bearish on the sector, especially in the Indian context. In his Asia Pacific ex-Japan portfolio, Wood has exited his holding in Kotak Bank and replaced it with Maruti Suzuki.

“This issuance of forbearance pressure on banks is not just an issue for India but one for bank stocks globally. It is why bank stocks would not be GREED & fear’s favourite way to add to cyclical exposure for those who buy GREED & fear’s base case that the health crisis will prove to be a three to four-month cycle and that life will return to normal much sooner than currently assumed by the chattering classes,” he wrote.

Budget 2020: Commerce ministry seeks a reduction in import duty on gold

Gross export of gems and jewellery declined by 5.3% to $27.7 bn for the first nine months of this FY.

Union Budget 2020 Expectation :The Union business service has looked for a decrease in the import obligation on gold in the coming Union Budget, with the end goal of pushing assembling and fare of the diamonds and adornments part, a source said.

In a year ago's Budget, the administration raised the tax on gold to 12.5 percent. From that point forward, the worldwide cost of gold has risen about 20 percent, amplifying the ascent in customs obligation. These, the diamonds and gems area has argued, are gagging the high-occupations producing segment.

Gems retailers and exporters have asked the duty be cut and furthermore the products and enterprises charge (GST) on adornments accreditation.

"In the previous 12-year and a half, in any event 20 percent of a gifted workforce of an expected million has relocated to different administrations, including nourishment conveyance chains like Swiggy and open vehicle transportation administrations like Ola and Uber. Moved gifted specialists, as indicated by them, win around Rs 45,000 every month, which the adornments business can't coordinate because of a log jam in residential deals," said Anantha Padmanabhan, overseeing executive at Chennai-based NAC Jewelers.

There has been a precarious decrease in gems deals more than a year, due to both the sharp increment in gold costs and an easing back of the general economy. At Rs 39,670 for 10g, gold costs in India have risen 25 percent in a year.

"The situation is exceptionally terrible for the residential business. Another 5 percent expansion in gold costs from here would complete it," said Padmanabhan.

With falling ranch yield and rustic customers in stress, that piece of the interest is likewise hit. As a result, numerous little and medium measured retailers have cut their size of activities, says the exchange, leasing a piece of their showrooms for different business.

"There is a quick requirement for a slice in customs obligation to five percent. With the present record deficiency circumstance leveled out at 1.5 percent (of GDP) for April-September 2019, we bid to the administration for this. The import obligation on unpleasant precious stones ought to likewise be brought down to 2.5 percent, from the current 7.5 percent. Furthermore, the GST on precious stone affirmation must be trimmed to 5 percent, from 18 percent," said Colin Shah, bad habit director, Gems and Jewelry Export Promotion Council.

Net fare of pearls and gems declined by 5.3 percent to $27.7 billion for the initial nine months of this budgetary year, from $29.2 billion for the relating time frame a year ago.

Gold's impressive performance in 2019 may spill into the new decade

Spot gold -- which last traded at about $1,461 an ounce -- is up 14 per cent this year.

Market News : Gold’s impressive advance in 2019 -- aided by trade war frictions, easier monetary policy across the world’s leading economies and sustained central-bank buying -- may be set to spill into the new decade.

As 2020 looms, BlackRock Inc., the world’s largest money manager, remains constructive on bullion as a hedge, while Goldman Sachs Group Inc. and UBS Group AG see prices climbing to $1,600 an ounce -- a level last seen in 2013.

Bullion is heading for the biggest annual advance since 2010, outperforming the Bloomberg Commodity Spot Index, as a year dominated by trade war vicissitudes and a trio of Federal Reserve interest rate cuts propelled the traditional haven to the forefront. Still, with global equities remaining buoyant and the US labor market proving resilient, gold’s outlook isn’t clear cut due to uncertainty over what central banks will do in 2020.

“Economic growth and inflation remain moderate and central banks continue to lean toward accommodation,” said Russ Koesterich, portfolio manager at the $24 billion BlackRock Global Allocation Fund. “In this environment, any shocks to equities are likely to come from concerns over growth and, or geopolitics. In both scenarios, gold is likely to prove an effective hedge.”

Annual Advance

Spot gold -- which last traded at about $1,461 an ounce -- is up 14 per cent this year, on course for the third annual gain in the past four years, with the only backward step being 2018’s 1.6 per cent fall. In September, the metal hit $1,557.11, the highest since 2013. While holdings in bullion-backed exchange traded funds have eased, they remain near a record.

Geopolitical and economic risks are likely to feature in 2020 just as they did this year, which could support gold: a phase-one trade accord between the top two economies may be close, but the US has pledged to impose tariffs on more imports if a deal isn’t struck by Dec. 15.

The US presidential vote looms in November, and before that there is the possible impeachment of the incumbent. Donald Trump has said many different things on the trade war, his stance shifting week to week, including recent remarks he likes the idea of waiting until after the polls to sign a deal.

“Who knows what the US president does next, he has surprised us many times,” said Giovanni Staunovo, a commodity analyst at UBS Wealth Management. “We also have the presidential elections, so expect more volatility, more noise in the market.”