Gold hovers near record highs as economic fears persist

Courtesy Reuters

Gold was set for its third successive daily rise in international markets today, supported by uncertainty over the resilience of the global economic recovery and by resurfacing geopolitical tensions with Iran.

Gold prices flirted with sessions highs as the euro came under renewed pressure to fall to a 1-1/2 year low against sterling and eased against the dollar, while euro zone government bonds rose as investors were unsettled by a fall on Wall Street and persistent concern about Europe's debt crisis.

"Really the big driver is investor perception, investor risk appetite and do we see any nervousness over the European (debt) issue," said Societe Generale analyst David Wilson.

"Sentiment is still quite brittle, so we can get intraday moves in either direction, but the longer gold stays above $1,250 and consolidates, the more likely we are for a leg up rather than a leg down," he said.

Spot gold rose $7.80 to $1,261.35 an ounce by 1415 GMT, having hit an all-time high of $1,264.90 an ounce last Monday. U.S. gold futures for August delivery rose $5.50 cents to $1,261.30 an ounce.

Adding to the bullish backdrop for gold were comments from U.S. intelligence officials that Iran has enough fissile material for two atomic bombs.

Gold came under modest pressure earlier in the day from a rise in the dollar as its traditional inverse relation to the greenback briefly reestablished itself, while the broader markets were largely unperturbed by the weekend's meeting of G20 leaders in Toronto.


SAFE HAVEN SWEEP

But flagging equities and the broad decline in the euro reinvigorated the safe-haven sweep into both the U.S. currency and gold, prompting the two to move in tandem.

"The underlying safe-haven concerns that have supported prices -- the economic environment, Europe's fiscal outlook and the longer-term prospects for inflation, remain," said David Moore, commodities strategist at Commonwealth Bank of Australia.

"The G20 hasn't had a significant impact on markets, and while concerns about Iran's nuclear capacity are nothing new, there seems to be additional clarity."

With this in mind, gold could rise further to surpass the June 21 record at $1,264.90 per ounce to touch $1,270, as bullish momentum is strong, according to Reuters technical analyst Wang Tao.

He noted the bulls were taking control, with prices in an ascending channel from a $1,224.30 low struck last Wednesday and sharp rises and mild falls.

Gold was little moved by data that showed U.S. consumer spending rose more than expected in May, even as savings touched their highest in eight months, while a measure of inflation showed fairly muted core price pressures.

However, a continued contraction in physical demand from traditional end-users could undermine gold, at least in the short-term, analysts said.

The head of the Bombay Bullion Association said on today that gold imports into top consumer India are likely to have fallen by 75 percent in June from 29.9 tonnes a year ago. Suresh Hundia, president of BBA, told Reuters this bearish estimate could be overly optimistic and the final figures could be lower than this.

"The numbers are so bad, nobody wants to share it this time," he said referring to the importing banks and trading agencies, which contribute their data to the trade body.

While consumer demand has been dampened by gold prices near record highs, concern about the stability of the wider financial markets has fed demand for gold-related investment vehicles.

The world's largest gold-backed exchange-traded fund, SPDR Gold Trust said its holdings remained unchanged at an all-time high at 1,316.177 tonnes.

Silver was up at $19.19 an ounce, from $19.04 late in New York on Friday, while in the platinum group metals complex, platinum rose 0.9 percent to $1,580.00 and palladium was up about 0.3 percent at $476.00.

Risk back in vogue for investors abroad

Investors set aside sovereign debt fears (defaults by countries) and shifted their money to higher-returning assets in mid-June, with emerging market assets and U.S. equities among the recipients of fresh cash, EPFR Global said in a report on today.

Sensex to touch 19.5k by 2010 - 2011 fiscal end, says LIC investment chief

Indian equities may be gyrating on fears of Europe's spreading contagion, but N Mohan Raj, executive director in charge of investments at LIC, India's largest fund manager, remains unfazed. "We will not be swayed by short term volatility. The valuation has cooled down a bit. Every dip is an opportunity to buy," he has said, as per a report in the Indian Express Finance.

Raj expects the market to touch 19,500-levels by the end of this fiscal, which translates into returns of about 15% from current levels. His optimism stems from the fact that India's economy continues to be on a firm footing notwithstanding the turmoil in developed economies. "Locally, we don't see any trigger other than the monsoon. A good monsoon will do a lot of good for the economy, help spur rural demand and keep the food inflation in check," he says.

That said, India is not fully immune to global headwinds. "Global cues will determine how much money is brought into India by foreign institutional investors (FIIs). FII flows might feed into the sentiments of domestic institutional investors as well," says Raj. In fact, there is a strong possibility that FII flows might reverse if the dollar continues to strengthen. According to Raj, currency gain is one of the key reasons foreign investors (from the dollar region) put in their monies in riskier emerging markets like India. "If that arbitrage shrinks they might look for an exit," he cautions.

Going forward, Raj reckons sectors such as infrastructure, banking and FMCG are set to do well in India. "A lot of money is set to pour into infrastructure. The government also seems to be serious about investing in this space," says Raj, adding that the importance of infrastructure for the development of the country cannot be overemphasised.

According to him, the fourth quarter earnings season has been better than expected. However, he warns that the next quarter might not be as cheerful. "Input costs have risen across sectors. Higher inputs costs will moderate earnings," he says.

LIC has invested to the tune of Rs 1,93,000 crore in FY10 in various asset classes, of which a little over Rs 61,000 crore was put into equity. It invested nearly Rs 8,400 crore in equities in the first two months of the current financial year, about seven times the amount it had invested during the corresponding period of the previous fiscal.

Traditionally, the fourth quarter of the financial year sees the maximum sale of insurance policies. "This is available for deployment in the next financial year,"said Raj.

India Inc prunes Q4 losses by 28.5%

India Inc has not only witnessed a surge in profits during the January-March 2010 period, but the number of loss-making companies has also been steadily declining, a study carried out by Financial Express has revealed.

The study, on a sample of 2,430 quoted companies (excluding banks and NBFCs), shows that around 668 firms (27.5%) made losses during January-March 2010. This is a 46.3% fall from the 1,243 companies that reported losses during the same period last year. During April-June 2009, the number dwindled to 897, to 828 during July-September 2009 and 747 during October-December 2009.

Moreover, even the quantum of losses has seen a slide. In terms of value, the loss has steadily decreased 28.5% to Rs 7,010 crore in January-March 2010 from the level of Rs 9,798 crore in January-March 2009.

Cumulative sales (of 668 loss-making companies) was Rs 35,384 crore in January-March 2010 against Rs 49,987 crore (of 1,243 companies) in January-March 2009.

The fortunes of India Inc improved during Q4 FY10 compared with Q4 FY09. Commodity companies led the pack with improved volumes and realisations. Interestingly, the number of companies incurring losses declined sharply during the same period. On delving deeper, the industries that outperfomed belonged to sectors like auto ancillaries, gems & jewellery, engineering, food processing, hotels, textile companies, among others. With improved economy and higher spending, domestic consumption grew, leading to better financials of many companies in these sectors.

During January-March 2010, the top five loss-making companies are MTNL, Suzlon Energy, Kingfisher Airlines, HFCL and Wockhardt (WOCKPHARM.NS : 127.2 -4.55). The loss of Kingfisher Airlines increased 3.2% to Rs 572 crore during January-March 2010 from Rs 554 crore during January-March 2009. During January-March 2009, the top five loss-making companies were Ranbaxy Labs, Kingfisher, Northgate Tech, Raymond and Hind Photo Films.

Among the industries studied, more than Rs 100 crore loss was registered during January-March 2010 in sectors like cement, IT, electric equipment, entertainment, pharmaceuticals, steel, sugar, tea, telecommunications, textiles and airlines.

On the other hand, during January-March 2009, 17 industries registered more than Rs 100 crore loss. These include automobiles and ancillaries, IT, construction, jems & jewellery, entertainment, fertilisers, pharmaceuticals, steel, telecommunications, textiles and airlines. Significant surge in losses was seen in cement, electrical equipment, shipping, sugar and telecommunications sectors. The loss of telecommunication companies leaped from Rs 681 crore during January-March 2009 to Rs 2,167 crore during January-March 2010.

A downward trend in loss was seen in aluminium, automobiles and ancilleries, IT, construction, jems & jewellery, electronics, engineering, entertainments, fertilisers, food products, hotels, pharmaceuticals, retail, steel, tea and textiles, among others.