Clyde Russell is a Reuters market analyst. The views expressed are his own.
LAUNCESTON, Australia, Jan 29 (Reuters) – Gold’s positive start to the year seems to be based more on hope than any real change to the factors that saw the precious metal shed 28 percent last year.
Spot bullion has gained 4.25 percent since the start of the year to the close of $1,256.09 an ounce on Jan. 28, with China and India factors helping to drive the rally.
The optimistic view for gold is that top buyer China will continue to buy record amounts and that India, which was supplanted by its Asian neighbour last year, will ease the restrictions that crimped its demand last year.
Taking India first, and the gold bulls have taken heart from comments on Jan. 27 by finance ministry officials that the curbs on gold imports will be reviewed by the end of March. India progressively hiked import taxes to a record 10 percent last year and imposed a requirement that 20 percent of imported gold must be fabricated and exported.
The aim was to cut a ballooning current account deficit, and gold, as the number two import by value behind oil, was viewed the best target given its limited role in creating economic growth.
Initially the gold market had shrugged off the Indian moves, apparently believing that demand in the South Asian nation was so strong it would overwhelm the government’s determination to reign in the current account deficit.
However, by the end of last year the measures had worked, with imports being slashed to just 21 tonnes in November. This was in a country that imported an average of about 80 tonnes a month in the year to September 2013.
The hopes for a review of the measures has been sparked by the likelihood that India’s current account deficit is expected to fall to about $50 billion in the fiscal year to March, down from the record $87.8 billion the prior year.
However, this misses the point that having achieved some measure of success in bringing down the deficit, the government will be reluctant to allow to rise again.
It also should be noted that the Reserve Bank of India, which enjoys a fair degree of autonomy from the government, is the responsible agency for setting the rules on re-exporting, and an official there has indicated it’s unlikely to review its rules until after the end of March.
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