January has been a positive month for gold, with the prices of the precious metal moving up in a fairly steady fashion over the last 30 days. Having begun the year at a low around the $ 1,060 per ounce mark, with a fall of over 10% in the preceding 12 month period, interest in the yellow metal was expected to be muted.
But, riding on a sudden fall in global equities, triggered by the slowdown in China, currency fluctuations, sudden mini-crises in the political sphere, further declines in crude prices and uncertainty over the US recovery and the Fed rates, gold has swung back and recorded four consecutive weekly rises.
It ended the month just below the $ 1,120 levels, having moved up by about 6% during the 30-day period, and even crossed a three month high during the last couple of trading days.
At the same time, it is good to recall that prices still remain well below the levels of January 2015, indicating that the current upward trend is a sort of mini-rally and not yet a long term turnaround.
Analysts have however been suggesting that gold is nearing the bottom of a price cycle, and while there will be short term spikes and falls, the scenario for the medium to longer term is more positive than for any of the other three precious metals - silver, platinum or palladium.
Heraeus Trading, a global trader in the segment said recently that it remained cautiously optimistic about prices, even as it believes there will be "temporary price dips … below the magic 1,000 $/oz mark". Its recent report has projected a trading range of "between 970 $/oz and 1,250 $/oz" in the first half of 2016.
Nearer home, currency fluctuations have seen an even more marked increase in gold prices. Starting 2016 at Rs 25,500 per 10 grams levels, the metal has seen an over 6% increase in local prices and ended the month over Rs 27,100 per 10 grams. While the upward trend was partly driven by global factors, it also appeared to be influenced by bullion traders stocking up in anticipation of demand for the forthcoming wedding season and sales on auspicious days like Akshaya Tritiya.
Sentiment plays a large role in influencing gold demand, and the mood in favour of the yellow metal has been positive through most of the month.
Clearly this has worked well for the government's Sovereign Gold Bonds scheme, the second tranche of which closed on January 22.
Last week the Ministry of Finance announced that this round had been well received by investors and significantly surpassed the response to the first tranche on all parameters.
As per a release issued on January 28, the second round, which had been open for subscription from January 18-22, attracted 3.16 lakh applications for a total subscription of 2,790 kg of gold amounting to Rs. 726 crore.
It appears to be an impressive rise since the first tranche in November 2015 had got 62,169 applications with subscriptions for 915.9 kg of gold amounting to Rs 246.20 crore.
When the second tranche opened, an increase in subscriptions was indeed expected. Some of the issues encountered at the time of the first tranche - low investor awareness, long duration of the subscription window, pricing etc had been partially addressed this time around.
There was also a more concerted effort at promotion. Propaganda campaigns by the government and individual banks through radio, print, mobile and social media channels created a greater buzz.
A shorter subscription window to guard against price fluctuations and clarifications that the bonds can be used as collateral for loans at a loan-to-value ratio similar to that for ordinary gold loans as mandated by RBI from time to time also boosted interest.
No doubt, investors in bonds are not looking for short term gains and profit booking, but enter with a longer term view. Yet, the role that sentiment plays in the gold market is fairly important; and even temporary price movements can cause serious mood changes.
Over the coming two months there are likely to be a couple of additional tranches of the Bonds scheme. Continued positive developments on the price front will be important to create an enabling environment where more investors come forward to pick up the paper gold.
Columnist
He has been a journalist since the mid-1980s, and has spent close to two decades tracking the gem and jewellery industry while holding different editorial positions in industry specific publications and websites
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