All Still Glitters in India

Canaccord Genuity's Morning Coffee (10/16/2009)
"All still glitters in India. The Wall Street Journal (WSJ) highlighted that, after gold futures spent much of the month stretching to record highs well above US$1,000 an ounce, they saw their first significant pullback in a while yesterday. It's a good reminder that all market factors aren't glittering for the metal, the WSJ stated. First, there's a whole lot of bullish sentiment out there, perhaps too much. Then, there's the dollar. 'In the absence of fresh news flow and given that speculative interest remains at record levels, further profit-taking (on gold) could emerge, particularly if the dollar exerts near-term strength,' a Barclays Capital analyst wrote in a recent research note. And of course, there's also fundamental demand. The WSJ pointed out that some are worried that higher gold prices might continue pinching demand in India—the world's biggest market for gold jewelry. However, Indian shoppers still appear to be snapping up gold jewelry, coins and other trinkets, to mark Dhanteras, the most auspicious day in the year for buying gold, according to Indian tradition.

Reuters reported that record gold prices have failed to dim the enthusiasm of Indian shoppers as the price of pure spot gold hit a new high of 16,100 rupees (US$349.49) per 10 grams Wednesday in the Mumbai market, and many jewelers were concerned it might hit sales even on Dhanteras. But those fears were unfounded, reports Reuters. 'We have three jewelry stores in this place and all of them have seen good response today,' said Deepak Tulsiani, proprietor of Dwarkadas Chandumal Jewellers, located at Zaveri Bazaar. 'We opened our store around two hours earlier than usual and since then we have seen a steady flow of customers.' Girish Choksi, of Girish Kumar Ramanlal Choksi & Sons said, 'We have seen retail sales rising by 15% from last year so far today and investors are also coming in to buy.'

Canaccord Adams is maintaining our peak gold and silver scenarios (initially set in mid-February) at US$1,100/oz peak gold and US$18/oz peak silver for equity target price setting. We continue to believe that the potential outcome of global financial stimulus efforts will be broad currency devaluation, inflation and gold's increased status as a reserve and investment asset. The U.S. dollar had been in decline again since March as the world appears to be losing faith in the greenback as the global reserve asset. Gold has also become recognized by some countries as worth holding in greater quantities (i.e. China and Russia). Indeed, for the first period in decades, central banks were net buyers of gold in Q2/09. We also have the support of a renewed Central Bank Gold Agreement (CBGA III) which will limit selling by 19 signatory nations/institutions to 400 tonnes/year over the next five years. Apart from planned IMF sales of 403 tonnes over an expected 2- 3 year period, no other parties have formally announced selling intentions. Investment demand continues to positively drive the gold market. The World Gold Council estimated Q2/09 investment demand (i.e., exchange traded funds, bars and coins) rose 46% (or 222 tonnes) over Q2/08 levels."

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