The Hindu festival of Akshaya
Tritivai is coming up this month and this is of interest
for gold investors. The holiday, which falls on April 24th, is a day when
Indians go on a major gold buying binge. It is one of the most auspicious
occasions to buy gold, the ultimate symbol of wealth and prosperity. The
timing couldn’t be better for the ending last week of the 20-day strike
by India’s jewelers and gold importers who protested new government
taxes on bullion. Moreover, the wedding season has already started in some
parts of India and gold is an integral part of most Indian weddings. It is
expected that in April and May imports will be around a 100 metric tons to
India, the world’s largest consumer of gold. The nationwide strike is
estimated to have cost the industry at least $3.91 billion.
According to an annual report released Wednesday by
metals consultancy GFMS, gold’s speculative investors may have been
shaken by gold’s volatile ride last year, but the physical
market—particularly in China—remained faithful to bullion and the
trend is expected to continue in 2012.
Gold bar demand and hoarding from China alone rose
40% in year- on-year in 2011 to a new record of 250 tons, according to GFMS.
And this trend is likely to continue.
Demand for physical gold in the form of coins and
bars grew in 2011, while Chinese appetite for gold jewelry expanded to record
levels. This contrasted with a 10% drop in overall world gold investment by
tonnage, amid heavy redemptions in the over-the-counter and gold futures
markets as investors cashed in their gold positions amid heavy losses in
other financial markets.
While investment demand dipped, 2011 was a
“bumper year for physical investment,” according to a GFMS metals
analyst. “Gold was clearly dependent on emerging markets’
economic strength as China’s jewelry demand grew to a record level, while
India’s fell by less than 3%.”
Physical gold bar investment surged 37% last year to
a new record of 1,209 tons, according to GFMS. This was driven by strong
demand for physical gold as a store of value in China and India as well as
“safe haven” interest from western investors, the report said.
Global gold coin fabrication rose 15.2% to 245.5,
spurred mainly by strong demand in Turkey and China, said GFMS. Rising
concern over inflation and the rapid hike in disposable incomes in places
like China is also driving demand for physical gold, said GFMS.
Although the Hindu festival of Akshaya
Tritivai is still 7 days away, let’s see if
it will indeed be auspicious to buy gold during this period. Let’s turn
to today’s technical part. We will start with analysis of the US Dollar
Index (charts courtesy by http://stockcharts.com.)
Our first chart today is the very long-term USD
Index chart. Since virtually nothing changed last week, we have decided to
quote from last week’s commentary:
that the sideways trading patterns continue between the two levels which are
quite important from a technical perspective. These are the declining
long-term support line and the horizontal support line based on the early
2011 high. At this point, the very-long term chart remains mixed as the USD
Index moved a bit higher once again this week, but no breakout has been
confirmed thus far.
Let us now move on to see how gold did over the last
couple of days.
We begin with a look at the very long-term chart.
Last week, the situation unfolded pretty much as we expected and in line with
what we have been reporting over the past few weeks. The price of the yellow
metal fell both on Friday and on Monday – but there are no rallies
without corrections and seeing one on these two days is not a bearish
Gold’s price has risen nearly 4% since its
intra-day low on April 4. The self-similar pattern (comparing late 2011 and
2012 performance to 2006-2007 one) is still in place, although the shape of
this correction has been a bit different.
Gold bottomed below the 50-week moving average back
in 2007 and began its strong move to the upside soon after, gaining over 50%
in the next nine months. Thus this level should be observed closely, as gold
closing above it would be a subtle indication that the rally has already
Again, the situation continues to unfold in a manner
consistent with the self-similar pattern. Profound bullish implications are
therefore in place for the weeks ahead.
Let us now have a look at the chart of gold from the
Japanese yen perspective.
Here we see that a bottom has formed right at the
lower border of the trading range. The implications are bullish. The recent
decline which came after the sharp rally which began at the start of 2012 was
followed by over month of consolidation. Gold’s price could therefore
move higher, perhaps to the upper part of the trading channel. Such a move
would likely result in a considerable rally in gold prices from the USD
perspective as well.
Finally, we look at the gold-to-bonds ratio chart
which compares daily closing gold prices with corporate bond index. In
general, this chart allows us to put all short-term moves into proper
perspective. The chart suggests that we have seen a major bottom and gold is
quite likely to now provide us with a strong, multi-month rally. This chart
is also clearly bullish.
Summing up, the situation in the USD Index is rather bearish for
the long term which is rather bullish for gold. The outlook throughout the
gold sector remains bullish.
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Thank you for reading. Have a great and profitable week!