India is supposed to be back open for business. After Narendra Modi and the Bharatiya Janata Party won a majority, this is supposed to be solid for getting India back in business without protectionist policies that are anti-business. While this is good for infrastructure and companies that sell into India, the biggest winner here may be the gold trade.
Modi plans to undo some of the changes that were not working for India, and in the election process he had reportedly mentioned undoing some of the tariffs and restrictions on gold in India. In case it has been long enough that you forgot, Indians have a love for gold that surpasses almost any other nation. Its population of 1.2 billion allows for India to be the world’s second largest consumer of gold, making India’s gold lust a serious issue.
The outgoing party had raised gold import taxes from 2% to 10% to try to keep people from buying gold (and hopefully to buy consumer goods). The other imposing issue from the prior regime was that 20% of gold imported had to be exported again, an attempt to make jewelers and other gold-heavy industries export their products and bring money back into the country.
While gold made a run for $1,310, the shiny yellow metal started this past week around the $1,290 handle and closed out the week around $1,293.
The SPDR Gold Shares Trust (NYSE: GLD) closed out the week at $124.50, only $0.40 higher than the week before. Perhaps the biggest issue is that gold’s chart (via the GLD) is in a precarious position — at $124.50, it has a 50-day moving average of $126.17 and its 200-day moving average is $125.33 (see the StockCharts.com chart below). Both of these moving averages have acted as resistance on the upside, and the chartists will get to point out a possible death cross in a few days if gold does not rally.
Then there is the case of Newmont Mining Corp. (NYSE: NEM) and Barrick Gold Corp. (NYSE: ABX) regarding a potential merger. Talks between the two gold giants were said to have broken down, with both companies supposedly blaming the other for a failed merger. Newmont has a market cap of $12 billion, versus more than $19 billion for Barrick Gold. This would create a more than $30 billion mining outfit, with combined revenues from 2013 in excess of $20 billion.
This potential upside is being monitored by the gold bugs and those betting against gold alike. Hecla Mining Co. (NYSE: HL) remains one of our potential stocks that could double in 2014. Its stock remains stubbornly stuck close to $3.00, against a 52-week range of $2.63 to $4.03, and the consensus price target is currently $3.83. Hecla remains a turnaround candidate, and is one of the more speculative names in the sector.
Gold is a funny vehicle for trading. The reasons that people own it vary wildly, and those reasons often conflict with one another.
India is not the only thing to consider in gold. Russia is likely to have to be buying more gold again to protect the ruble from turning into rubble. The Europeans are due for a rate cut to create more stimulus. And to complicate matters even more, the Federal Reserve is trying to slowly exit its endless quantitative easing measures by tapering its bond buying by $10 billion each month.
This coming week is going to be an interesting week for gold — perhaps just on a chart reading alone, if nothing else.