overview of global economy and its effect on Gold & Silver

How global economic outlook affects gold, silver

Emkay Commotrade has come out with its report on "overview of global economy and its effect on Gold & Silver". According to the research firm, the Indian government plans to impose import restrictions on the quantity of gold one can import, which is likely to hurt the physical demand for gold from the world's largest gold consumer.

Emkay Commotrade has come out with its report on "overview of global economy and its effect on Gold & Silver". According to the research firm, the Indian government plans to impose import restrictions on the quantity of gold one can import, which is likely to hurt the physical demand for gold from the world's largest gold consumer.




 Gold


Global Economy

Euro zone recession- The euro zone is on the track of recovery from its debt crisis. Stability in the financial system and improved consumer and business sentiment has raised hopes of revival in the economy. However the recession is expected to continue in the first half of 2013 after which economic activity would recover gradually. This would hurt gold's inflation hedge appeal and put pressure on prices.

China economic recovery- The world's second largest economy snapped out of a seven quarter slowdown and grew 7.9 percent between October and December. The economy is expected to grow around 8% in 2013. Strong signs of recovery have improved the prospects for growth which is likely to hurt gold's safe haven appeal as investor's appetite for riskier assets would increase and push gold prices down.

US spending cuts- The planned spending cuts known as "sequestration," which would total $1.2 trillion over a decade, are expected to trigger from March 1. The first round of cuts would total about $85 billion over seven months. This will have negative effects on the economy and can push the economy into recession. This could prompt the Fed to continue with its loose monetary policy to support the economy and can boost gold's inflation hedge appeal.

India gold imports- The government has recently taken significant steps to bring down its huge current and fiscal account deficit. Gold imports have been one of the major contributors to the current deficit. In order to curb gold imports government has raised the import duty on gold by 2 percent to 6 percent. It also plans to impose import restrictions on the quantity of gold one can import. This is likely to hurt the physical demand for gold from the world's largest gold consumer.

SPDR Gold Trust- Holdings of the largest gold-backed exchange-traded-fund (ETF), New York's SPDR Gold Trust GLD fell 1.62 percent from January to February to 1349.92 tonnes.

Silver

Industrial Demand- Silver's use in industrial applications is expected to gain nearly 7 percent to 484 million ounces in 2013 and an additional 6 percent to a record 511.6 million ounces in 2014

Gold vs. Silver & Platinum

Investment Assets- Both silver and gold are monetary metals. In times of uncertainty and high inflation, investors rush not only towards gold, but also to silver, especially in America. Silver is also extensively used for fabrication of silverware and jewellery, photographic, and other industrial uses.

Limited Downside- China is the engine that has been driving world industrial growth. Positive outlook for China is likely to boost the demand for silver more than gold. This could limit the downside in silver prices as compared to gold

IShares Silver Trust- Increase in the iShares Silver ETF holdings in recent years has also led to a sharp rally in silver. In 2012, iShares Silver ETF holdings was up by 13.15% whereas SPDR Gold holdings were up only by 7.67%.

Platinum Premium to Gold- Recently we have seen a rally in platinum and palladium which has pushed the platinum's premium to gold to a 17 month high. The industrial uses of these metals and supply concerns have supported the prices at a time when gold prices have been pressured by an increased appetite for riskier assets.

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.