World’s Largest Gold Guzzler May See Gold Demand Rise on Rupee at Record Low

Worlds Largest Gold Guzzler May See Gold Demand Rise on Rupee at Record Low

World’s Largest Gold Guzzler May See Gold Demand Rise on Rupee at Record Low


The Indian Rupee weakened 1.4% to 59 per US dollar today- it’s lowest level till date.

The SP BSE India Sensex index dropped 1.1%, while the yield on the 7.16% government bond maturing in May 2023 rose to 7.30% from 7.28% yesterday. The Indian Rupee reached its weakest level against the US Dollar today, weighed down by an unprecedented current-account deficit, the slowest Indian economic expansion in a decade and speculation the dollar will gain if the U.S. scales back monetary stimulus. The INR – Indian Rupee now has the potential to drop way past 60 against the dollar and the central bank “is unlikely to burn its foreign reserves” to defend it.

I had mentioned about the fall with technical details earlier on 31 May in an article : Indian Rupee Nifty tumble on feeble Economy Growth

The rupee is down about 4.7% in the past month, the most among 11 Asian currencies, threatening to stoke price pressures. USD / INR Jun Futures have resistance between 57.07 to 57.25 range. A rise with sustained momentum above 57.55 can take the dollar to 58.15, 59.05 then 60.40 against the Indian Rupee.

My second target of 59.05 stands achieved today after the USD / INR Jun Futures hit a high of 59.13 today. The INR will remain weak till remains below the 57.25 mark. This sustained weakness can lead it further to 60.40 once below this mark, all the way to 62.20 also.

India’s rupee has also dropped to a record low on speculation the US Federal Reserve will pare debt purchases that have spurred inflows into emerging markets. Investors redeemed more than $6 billion from high-yield bond funds worldwide in the week to June 5, EPFR Global data show. Global funds bought a net $15.3 billion of Indian stocks this year through June 7 and a slowdown will leave the rupee vulnerable to an unprecedented current-account deficit, according to Westpac Banking Corp. “Asian currencies are in free-fall at the moment and it’s difficult to pick a bottom for the rupee,” said Jonathan Cavenagh, a strategist at Westpac in Singapore. “We are also possibly seeing investors who have strong equity positions in India hedging their foreign currency exposure, which is putting pressure on the rupee.”

Gold Demand may rise in India on Inflation Fears – Expect higher buying on each price dip:

Gold declined to the lowest price in more than two weeks in London on speculation the Federal Reserve will curb stimulus as the US economy strengthens. Standard Poor’s lifted its outlook for the U.S.’s AA+ credit rating yesterday to stable from negative, citing receding fiscal risks. Federal Reserve Chairman Ben S. Bernanke said last month the central bank could curtail its $85 billion monthly bond purchases if the economy improves. Upbeat sentiment over the U.S. economic outlook continues to feed concerns of increasing U.S. yields and an easing pace to QE3.

Any substantial price slump in Gold in the international (Dollar rate) markets will mean renewed heightened buying frenzy for Gold bullion in India – the world’s largest gold guzzler. The depreciating Rupee will make gold costlier dearer, giving cause enough for gold hungry Indians to make a dash for the Gold markets. This in turn will worsen the current account deficit scenario, which in first place has already been hit by the Indian consumers never ending passion appetite for Gold – depreciating the rupee further. That will take Gold prices in India much higher than ever before, if appropriate timely steps are not taken. MCX Gold Futures for Aug shot up hit an intraday high of Rs. 28,288 today, unlike the slump seen in the Comex Gold trades, before retreating as the Rupee recovered from the sharp 2 day crash.

Rupee slump dashes RBI Rate cut hopes:

RBI Governor Subbarao said June 7 that India has a “current-account problem” and added that while inflation has “come off the peak,” consumer-price growth still remains “quite high.” The imbalance in the broadest measure of trade widened to $32.6 billion in the last quarter of 2012, equivalent to 6.7% of gross domestic product, fanned by gold and oil imports and subdued exports. The slump in the rupee to a record low has narrowed the RBI – Reserve Bank of India’s scope to cut interest rates next week for a fourth straight meeting. Subbarao had said May 30 that currency depreciation may stoke inflation and increase the cost of servicing foreign-currency debt. Wholesale prices rose 4.89% in April from a year earlier, a 41-month low, while the consumer-price inflation index climbed 9.39%. Gross domestic product rose 5% in the year ended March, the slowest pace since 2003. India’s interest-rate swaps rose to a one-month high on speculation the rupee’s slump to a record will give the central bank less scope to cut borrowing costs. The yield on the benchmark 8.15 percent government bonds due June 2022 rose four basis points to 7.53 percent, the highest level since May 13, according to the central bank’s trading system. The rupee will weaken beyond 60 in a sustained manner, Rajeev Malik, a Singapore-based economist at CLSA Asia-Pacific Markets.

Rupee trims losses as exporters sell dollars on intervention from the RBI:

Earlier today, Economic Affairs Secretary Arvind Mayaram said on Tuesday, after the rupee fell to a record low for a second straight day. The absence of central bank intervention prompted importers on Tuesday to rush to cover future dollar needs, while exporters refrained from selling dollars in expectation that the rupee could fall further. The Indian Rupee recovered sharply from record lows on Tuesday afternoon, as three dealers cited dollar sales by state-run banks on behalf of the central bank. However, they said the size of intervention from the Reserve Bank of India did not seem too large, with the steep recovery in the rupee being exaggerated by illiquid conditions in currency markets. The partially convertible rupee was trading at 58.47/48 per dollar at 2:04 p.m., off a record low of 58.98 hit earlier in the day, but still weaker than its close of 58.15/16 on Monday. Traders said the rupee was also supported by speculation that May wholesale inflation due this week may show continued easing and media reports the government was considering a special bond sale for non-resident Indians. Traders say dollar selling by exporters and a mild recovery in the domestic share market hurting the USD/INR pair. The Nifty is trading down 1.18%, recovering slightly from a fall of as much as 1.63%.

Rupee depreciation will trigger Inflation, which will lead to higher Gold Demand:

Indian oilseeds and Soyoil futures edged higher on Tuesday on a weak Rupee and gains in overseas markets, though expectations of bumper oilseeds production due to ample rainfall capped the upside.

Reuters Report:-

* At 0834 GMT, the benchmark Malaysian palm oil contract was down 0.16 percent at 2,449 ringgit per tonne, while U.S. soybeans rose 0.56 percent to $15.20-1/4 per bushel.

* “The weak rupee is supporting oilseeds. In the short term, prices will remain range-bound as the monsoon is progressing well,” said Faiyaz Hudani, a senior research analyst at Kotak Commodity Services Ltd.

* A weak rupee makes edible oil imports expensive but raises returns for oil meal exporters. The local currency hit a record low on Tuesday.

* The monsoon has covered entire Maharashtra and some parts of Madhya Pradesh, the weather department said on Tuesday. The central state of Madhya Pradesh is the country’s top soybean producer, followed by the western state of Maharashtra.

* Indian farmers are expected to increase soybean planting in 2013/14, encouraged by a rally in prices and the need to cultivate a sturdy crop to prepare for the possibility of an unhelpful monsoon season.

* The key July soyoil contract on the National Commodity and Derivatives Exchange edged up 0.25 percent to 697.40 rupees per 10 kg.

* The key July soybean contract was up 0.28 percent at 3,795.50 rupees per 100 kg, while the rapeseed contract for July rose 0.17 percent to 3,564 rupees per 100 kg.

* At the Indore spot market in Madhya Pradesh, soyoil rose 4.95 rupees to 712.75 rupees per 10 kg, while soybeans climbed 22 rupees to 3,897 rupees per 100 kg. At Jaipur in Rajasthan, rapeseed was up 9 rupees at 3,531 rupees.

* India’s soymeal exports fell to 96,492 tonnes in May from 142,588 tonnes a year earlier, the Solvent Extractors’ Association of India said in a statement.

India Said to Plan Higher FDI Caps for Telecom, Defense Firms Boost Rupee:

Bloomberg reported –

India plans to eliminate the cap on foreign-direct investment in telecommunications and raise the limit in defense to lure funds and boost the rupee, two Finance Ministry officials with direct knowledge of the matter said. Overseas investors would be able to own all of a telecoms company, up from 74 percent currently, with the ceiling in defense rising to 49 percent from 26 percent, the officials said, asking not to be identified as the information isn’t public. The changes are expected to be announced late June or early July, they said.

Finance Minister Palaniappan Chidambaram said in March a review of foreign-direct investment caps had begun, part of a government push to woo capital, fund a record current-account deficit and revive economic growth. The imbalance in the broadest measure of trade has weighed on the rupee, which plunged to its weakest level on record this week. Telecoms and defense are the two major areas of the economy where investment caps are set to be eased, the officials said. Minor adjustments may be made in other industries, they said, without giving further details. The government can announce changes in the foreign investment caps for defense and telecoms without Cabinet or Parliament approval, one of the officials said. Finance Ministry Spokesman D.S. Malik declined to comment when asked about the plans.


 What’s Behind the Rupee’s Slump?

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Comex Gold , Foreign Currency , Gold Markets , Gold Prices , Gross Domestic Product , Indian Rupee , Inflation , INR , MCX Gold , Nifty , Rupee , US Dollar , US Economy , USD/INR

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