NEW YORK (Scrap Register): Gold’s decline to near $1,200 an ounce is an attractive buying opportunity, said Standard Chartered, which looks for an eventual pickup in prices although analysts say pressure may persist in the near term.
According to Standard Chartered, weakness may last for a while yet due to U.S. Treasury yields, a negative short-term impact from India’s goods and services tax, and since late July marks the end of a seasonally slow period for physical demand.
“We think prices are more likely to gain momentum towards year-end as a more dovish FOMC [Federal Open Market Committee] rate-hiking cycle is priced in for 2018-19 and India’s seasonal demand picks up early Q4 2017,” said analysts at Standard Chartered.
“The most significant hurdle near term is macro headwinds facing a fragile physical floor. We see India’s GST (effective 1 July) as a temporary obstacle,” they added.
Concerns over the rate prompted merchants to restock ahead of the announcement in May, meaning less buying once the tax went into effect, the bank explains.
Initial reports reaffirm our view that demand is likely to be weak at first as challenges over invoicing and inventory are resolved, but thereafter to recover; retailers expect most of the issues to be resolved over the next three weeks.
The 3% GST was believed to be low enough not to stoke illegal sales of gold, and even though UAE jewelers believe they can benefit from the tax differential, we think that as early seasonal demand emerges and implementation hurdles are overcome, demand should stabilize, Standard Chartered added.