Gold bulls had their hopes boosted by two developments this past weekend. First: Switzerland’s vote to hold 20% of the Swiss National Bank’s reserves in gold, and second by India’s surprise announcement on Friday that it’s removing the restriction on gold imports – unfortunately neither have fulfilled their hopes.
Swiss voters voted against new rules that would have forced the Swiss National Bank to buy up to 1,500 metric tons of gold, some 50% of global annual production, over the next 5 years. India’s announced that it would withdraw the 80:20 scheme. Under it, importers were obliged to re-export 20% of all gold imported into India partly to slow imports but mostly to boost exports – both of which would reduce the net balance of trade drain that high gold imports are having on the economy there.
Gold imports still attract a hefty 10% import tax, though, and while no reason was given for the decision, the reality is that as official imports fell smuggled imports rose. No benefit was being seen to the balance of payments, but the treasury was receiving less revenue as no one paid a cent for the smuggled imports.
Short positions that had been unwound ahead of the Swiss vote are likely to now rebuild as the dollar continues to strengthen and the oil price continues to fall, so gold prices are expected to continue to trend downward. Currently at $1,175 an ounce, next year could see the price approach $1,000 ounce.