India’s gold imports increased sharply – up fourfold – in April, according to Bloomberg, citing a source within the Indian Finance Ministry. Shipments of gold into the country rose to 98.3 metric tons, more that four times the 22.2 tons for the same period last year. In April 2016, import volume was crippled by a lengthy jewelers strike in protest of an excise tax on gold jewelry.
This year, demand was initially hampered by the Modi government’s demonetization move that took the country by surprise. The government eliminated large denomination bills, severely reducing gold jewelry purchases in the Indian economy, which are mostly driven by cash.
Consumers are adjusting their buying patterns to the new monetary policies and are beginning to shift their gold buying to credit cards. Prior to this period, few Indian citizens carried credit cards. Prior to demonetization, cash transactions for gold amounted to 80 percent of the market. That number has dropped to approximately 50 percent as more Indian buyers turn to credit cards for purchasing their gold. After demonetization, the Indian economy stalled. As the money flow has begun to increase and gold prices have retreated from recent highs, there’s been plenty of demand built into the gold markets.
Demand has also been driven by an increase in the value of the Indian currency, as the rupee’s recent rise has worked to offset some of the price increases for gold to Indian buyers. The World Gold Council has revised its estimates for annual gold purchases in India this year to the higher end of their previously estimated range of 650 to 750 tons.
The latest UBS Global Precious Metals Report noted that India’s gold demand recovery suggests a healthy upside trend. The recovery suggests that the core demand for gold is intact and normalization in the regulatory environment in the coming months should pave the way for more stability in the precious metals markets.
The report also warned that there is an unknown factor at play in the form of the impact of the Goods and Services Tax (GST) expected to be implemented soon by the Modi government. The GST plan’s details are not yet known and the market is trying to anticipate which of several possible scenarios may emerge.
The various responses to the upcoming policy shift suggest there is little visibility within the government and they have made it a point to not give much indication of the details of the tax ahead of the formal announcement.
“RBC Capital Rates Gold: “Opportune Time to Buy”
A report by RBC Capital Markets, a division of the Royal Bank of Canada, estimates that gold will average $1,265 an ounce for the fourth quarter of 2017. The price target is notably above the recent gold price, marking this as an “opportune time” to buy gold, according the report. RBC Capital also noted that gold prices appear to have recovered from their nearly two-month lows and now may be the opportune time to layer into risk overlays, a recommendation they have made a number of times recently.
RBC Capital’s bullishness is based on two key technical signals. First, correlations on equities, rates and the dollar are zero to negative. In their view, this is the primary pillar of gold’s value as a diversification asset. Second, gold’s 30-day volatility has continued to fall in line with other financial assets.
The report also noted that the markets have suffered “whiplash” from domestic and international concerns, including the French elections, security concerns and political instability. However, the biggest concern for the near future is centered around what happens in global trade as protectionist rhetoric continues to increase, especially coming from the Trump White House. The largest risk-adjusted issue in the next several years is centered around global trade policies as yet to be determined.
Arizona Passes Legislation to Eliminate State Income Taxes on Gold and Silver
Sound money advocates are celebrating a victory as the Arizona Legislature voted to remove all state income taxes on precious metals. The bill, HB2014, was signed into law by Gov. Doug Ducey on May 22. When the law goes into effect (90 days after signing), Arizona taxpayers will be able to adjust their state return to eliminate all metals gains and losses reported on their federal tax return when calculating Arizona adjusted gross income.
When taxpayers own gold as a protection against the devaluation of the dollar, due to the inflationary practices of the Federal Reserve, they will often end up with a gain when selling their precious metals. However, this is not necessarily a real gain in purchasing power. The gain is often nominal because of the slow, steady devaluation of the dollar. However, the government still assesses a tax, further reducing real gains.
Arizona is leading the way in defending sound money policy and making it easier for its citizens to protect themselves from the financial upheaval and inflationary policies inherent in the federal system and monetary policy of the past several years. HB2014 is a very important and well-timed piece of legislation. According to sound money advocates, the Fed’s failure to reignite the economy with several rounds of quantitative easing and record-low interest rates since the 2008 crisis and crash is a signal that we may soon see the dollar decline further. As a result, it is imperative that laws be enacted to protect the rights of Arizona citizens to use financial and investment alternatives to what may soon be Federal Reserve notes of declining value.
Other states, including Utah and Idaho, have already addressed taxation and monetary policy at the state level and have taken steps to eliminate taxation of precious metals for their citizens.