Precious Metals Preview: Gold Well Supported, Local Futures Above Rs 30400 Level

COMEX Gold futures soared to eight month highs above $ 1320 per ounce last week as the US Fed pledged a dovish stance in its latest meeting after keeping the interest rates steady. Weakness in the US dollar also supported the metal.Gold has been well supported after the break above $ 1300 per ounce and currently trades at $ 1326 per ounce. MCX Gold futures broke above Rs 33400 per 10 grams, soaring as the interim Union budget provided a plethora of income tax rebates for middle class and also came up with financial support schemes for farmers and unorganized laborers.

The FM stated in his budget speech that individual taxpayers having taxable annual income up to Rs 5 lakhs will get full tax rebate and therefore will not be required to pay any income tax. As a result, even persons having gross income up to Rs 6.50 lakhs may not be required to pay any income tax if they make investments in provident funds, specified savings, insurance etc. The finance minister also said that the government has approved the Pradhan Mantri Kisan Samman Nidhi in effort to provide assured income support for small and marginal farmers. Under Pradhan Mantri Kisan Samman Nidhi, Rs 6,000 per year for each farmer, in three installments, to be transferred directly to farmers bank accounts, for farmers with less than 2 hectares land holding.

Meanwhile, the global gold demand in 2018 reached 4,345.1 tonnes (t), up from 4,159.9t in 2017 and in line with the five-year average of 4,347.5t, noted the World Gold Council (WGC) in its latest Gold Demand Trends update. A multi-decade high in central bank buying (651.5t) drove growth. Demand was bumped up in Q4 by 112.4t of ETF inflows, but annual inflows into these products (of 68.9t) were 67% lower than 2017. Investment in bars and coins accelerated in the second half of the year, up 4% to 1,090.2t in 2018. Full year jewellery demand was steady at 2,200t. Gold used in technology climbed marginally to 334.6t in 2018, although growth ran out of steam in Q4.

Annual gold supply firmed slightly to 4,490.2t, with mine production inching up to a new high of 3,364.9t. Central banks added 651.5t to official gold reserves in 2018, the second highest yearly total on record. Net purchases jumped to their highest since the end of US dollar convertibility into gold in 1971, as a greater pool of central banks turned to gold as a diversifier. Annual jewellery demand was virtually unmoved: down just 1t from 2017. Gains in China, the US and Russia broadly offset sharp losses in the Middle East. Indian demand was stable at 598t (-4t).