Commodities

With economy faltering, gold gains as haven asset  

M. R. Subramani Chennai | Updated on February 04, 2014

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Demand for gold as a haven asset has been renewed after data from China, US and UK, particularly in the manufacturing sector, showed that growth in the economy has slowed. This resulted in a sell-off in the equities market besides some of the currencies weakening.

The fall was triggered by data showing that new orders dropped to a three-decade low in the US and the construction sector witnessing little growth in December.

Equities slump

Early on Tuesday morning, shares in Asian market fell with the Japanese Nikkei dropping 3 per cent. Overnight, the Wall Street saw equities dropping to a seven-month low as a disappointing data worried investors.

With the US Federal Reserve deciding to pare its stimulus programme to $65 billion a month from next month, a class of investors is looking at gold to hedge their risks.

Last week, investment to the tune of $44 million has been invested in gold-backed exchange products, according to ETF Securities, which sees gold gaining in view of foreign investors cashing out of emerging markets.

Holdings in SPDR Trust, the world’s biggest gold-backed exchange traded fund, rose to 793.16 tonnes.

In the Indian market, any drop in the rupee against the dollar will make import of gold, crude oil and vegetable oils costlier. It will be another factor to contend with when gold vaults higher.

Spot gold, gold futures

By mid-day in Asia, spot gold was up at $1,257.31 an ounce and gold futures maturing for delivery in April rose to $1,257.

In the domestic market, spot gold on NCDEX had ended at Rs 29,700 for 10 gm on Monday.

MCX and NCDEX gold contracts maturing for delivery in April could rise above Rs 28,750.

Crude oil stockpiles

With economy showing signs of slowing and bets on US stockpiles rising, crude oil is likely to come under pressure.

Brent crude contracts maturing for delivery in March ruled at $106 a barrel in early trade and US crude at $96.58.

Soyabean, crude palm oil

Concerns over dry weather in Brazil, which helped coffee prices soar overnight in markets abroad, and higher demand for soyameal are likely to help the oils and oilseeds market rule firm.

On Chicago Board of Trade, soyabean futures maturing for delivery in March were up at $12.94 a bushel. On Bursa Malaysia Derivatives Exchange, which opened after a long week-end for the Lunar Chinese New Year, crude palm oil for delivery in April opened lower at 2,548 ringgit or $761.50 a tonne.

Corn, wheat

Corn (industrial maize) and wheat are likely to rule stable. While exports from the US are not encouraging in the US, the grain is helped by reports that the US environmental agency could put off its plan to cut ethanol use in fuels.

Though wheat supplies are seen ample, there is growing demand world-wide. On the other hand, fears over cold snap in the US are being cancelled out by snowfall that is seen protecting the winter crop.

On CBOT, corn for March delivery was quoted at $4.34 a bushel and wheat for delivery in the same month at $5.64 a bushel.

Published on February 04, 2014

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