Gold Market after the Russia and Ukraine invasion
Without a doubt, market sentiment is wavering in the investment community, focusing on inflationary pressures and Ukraine or the Federal Reserve’s tightening monetary policy. Inflationary pressures and the war in Ukraine are creating bullish market sentiment for safe-haven assets, especially gold. Responses to the Federal Reserve’s fiscal policy, which involves a set consecutive rate hike and the liquidation of balance sheet assets, on the other hand, lead to unfavourable market sentiment in gold.
Market players appear to revert back and forward between elements on a daily basis. And today, the players in the market are putting their primary focus on inflation continuing to move higher and the war in Ukraine. Regarding the war, it seems highly unlikely that a peaceful resolution will be forthcoming any time soon.
However, concerns have arisen in Ukraine over the use of excessive force and the targeting of civilians. The conflict in Ukraine seems to have had an impact on worldwide inflation, which has risen. Nowadays, Ukraine and Russia sell a significant amount of wheat as well as other farm commodities to European Union countries. The war has pressured agrarian products such as wheat grain higher.
The operational in the month of June 2022 contracts is up to $11.50 or 0.60 per cent as of 4:10 p.m. EDT and is presently fixed at $1934.80. Today, gold reached a top of $1941.70 and a down of $1923.30. At the same time, the currency has been strong this weekend, creating some challenges for gold prices. In the futures markets, the whole precious metals complex has seen advances for the day.
Silver futures are currently locked at $25.695, up nearly a whole per cent (+0.97%) or $0.23. Palladium futures are currently trading at $2242 per ounce, up 2.62 per cent on the day. However, it’s worth noting that over the last five weeks, there’s been a lot of variabilities and big negative selling pressure. Palladium reached a new high of well over $3400 an ounce during the first week of March 7 and has since lost almost 30% of its value when compared to current prices. Russia is a significant source of platinum and palladium, providing roughly 30% of the palladium used for the manufacture of catalytic converters in the automotive industry.
The United States and the European Union have imposed further sanctions on Russia, further isolating it.
Lastly, market participants continue to focus on the minutes from the March Federal Open Market Committee meeting, which were released yesterday, and statements made by Federal Reserve members, which indicate a much more hawkish tone and pace at which they will tighten their monetary policy to decelerate the pace at which inflation is rising.
The sentiments of the market fluctuate unquestionably throughout the financial community, with attention focused on inflationary pressures and Ukraine, as well as the Federal Reserve’s tightening of monetary policy. Inflationary pressures and the conflict in Ukraine have created a strong market feeling for gold, a safe-haven asset. On the other hand, the reactions to monetary policy by the Federal Reserve, including a series of interest rate hikes and balance sheet liquidations, resulted in bearish market sentiment in gold.
Market participants seem to alternate between these factors daily. Once again, focusing their attention on rising prices and the conflict in Ukraine. In terms of the war, it appears that a peaceful resolution will not be achieved any time soon. Concerns have been raised in Ukraine about disproportionate military activity and the targeting of civilians.
The conflict in Ukraine has also had an impact on worldwide inflation, which has risen. Currently, Ukraine and Russia sell an immense amount of wheat and other agricultural products to European Union countries, and the war raised the prices of agricultural products such as wheat.
Gold futures based on the most active June 2022 contract are up to $11.50 or 0.60 per cent at $1934.80 as of 4:10 p.m. EDT. Today, gold reached a top of $1941.70 and a low of $1923.30. At the same time, the dollar has been robust this weekend, giving gold prices some headwinds. All precious metal futures increase Intraday.
The United States and the European Union have imposed further sanctions on Russia, further isolating it. Nonetheless, it raises the likelihood of drastic military action as a response or justification for expanding their military assault.
Finally, market participants are still focusing on the minutes from the March Federal open market committee meeting, which were released the previous day, as well as statements made by Federal Reserve members that indicate a much more hawkish tone and pace with which they will tighten monetary policy to slow the rate of inflation.
Impact of gold on Indian economy:
Gold consumption and production are the main drivers of the Indian gold market. In terms of economic value-added, employment, contribution to foreign exchange earnings, and trade balance all have a significant impact. According to a survey commissioned by the World Gold Council from Price Waterhouse Coopers, gold has directly contributed more than $30 billion to the Indian economy.
The gems and jewellery business, which accounts for about 7% of India’s GDP and 15.71 per cent of the total exports of goods, reflects gold’s importance and effect. India’s gems and jewellery industry are one of the largest in the world, accounting for around 29% of global consumption. The sector accounted for 13.30 per cent of the country’s total exports of goods in FY 2014-15.
Here’s a breakdown of the several ways gold helps the Indian economy.
Mining of Gold: Gold mining has the potential to provide India with tremendous long term socio-economic growth. Furthermore, mining contributes to the development of infrastructure in a region, as well as the initiation and support of related service sectors, all of which often last well beyond the mine’s operation life. The gold mining industry, on the other extreme, had played a significant impact on the country.
In 2015, India mined only 45,000 ounces of gold. Even after accounting for gold produced as a by-product of copper mining on the subcontinent, the country’s gold output is only about 1.5 tonnes. China was the world’s most significant producer in 2016 (approximately 463.7 tonnes), accounting for almost 14% of total global production.
The refining capacity of India has seen the most significant change. In recent years, India’s long-standing refining business has seen a substantial increase in new capacity. The organized refinery environment has exploded from three to four refineries in 2013 to thirty in 2015, including an LBMA-accredited refinery and MMTCPAMP (a collaboration between the public sector MMTC and the public sector), and PAMP SA of Switzerland).
India’s refining ability has exceeded 1,450 tonnes, much higher than the five-year average annual gold imports. However, much of the new capacity remains unused due to the scarcity of recycled materials.
Manufacture of gold: Currently, 5 to 10 per cent of India’s gold manufacturing sector may be classified as “organized” large-scale operations, whereas ten years ago, these would have been unheard of. Nearly all of the jewellery produced in India is handcrafted, and the vast bulk of the industry is still dominated by small workshops with two to four goldsmiths.
What effect does this have on the current account deficit?
Although oil imports are the primary source of India’s enormous current account deficit (CAD), gold imports are also a factor which accounts for the second-largest share of the country’s import bill and also plays a role. When a country’s total imports and transfers exceed its total exports, CAD occurs.
Exports: India is one of the all-important exporters of gemstones and jewellery, according to the (India Brand Equity Foundation) IBEF, a Trust established by the Department of Commerce, Ministry of Commerce and Industry, Government of India. The industry is considered a crucial function in the economy, contributing a significant portion of the country’s total foreign reserves. The United Emirates of Arab, the United States, Russia, Singapore, Hong Kong, Latin America, and China are the top importers of Indian jewellery, which has risen to 160 countries in the last decade.
From April to December 2017, India’s gems and jewellery exports totalled $24.89 billion. Cut and polished diamond exports totalled $17.2 billion during the same time, accounting for around 69 per cent of total gems and jewellery exports in value terms. From April through December 2017, gold coins and medallions exports totalled $1,736.02 million, while silver jewellery exports totalled $3,114.85 million.
Expansion of gold loan market:
In India’s gold market, the practice of pledging gold as collateral has long been practised. Formal (banks and non-banking financial businesses) and informal (individuals) gold loan providers exist (money lenders and pawnbrokers). The companies of gold loans successfully persuaded the government to restore the 75 per cent LTV (loan to value) ceiling in 2014 after a period of lobbying, and the business has since recovered.
Edited by Prakriti Arora