By Michelle Smith — Exclusive to Gold Investing News
Gold is ingrained in Indian culture, which has led many to believe that the government's initiatives will fall short. Still, the measures are of concern because while taxes may not curb Indians' appetite for gold, higher costs could limit their ability to afford as much of it. For the larger gold market, the result may be significant declines in demand and downward pressure on prices.China's declining PMI The gold markets were severely disappointed in China when HSBC's Flash Purchasing Managers' Index (PMI) revealed that manufacturing had declined for the fifth consecutive month. Falling from 49.6 to 48.1, China's PMI is now further below 50, and anything below that level suggests a contraction. This fall renewed fears that the nation's economy is slowing at a much faster pace than is often suggested. The slowdown is viewed by many as anti-inflationary, and since gold is widely viewed as an inflation hedge, the metal loses appeal when inflationary concern subsides. Furthermore, there is a saying that as China goes, so go commodities. That the world's second-largest gold consumer appears to have a contracting economy is viewed as overall bad news for gold as it suggests that gold demand is declining. Mali's military takeover Last week the military seized power in Mali. This action was reportedly born out of frustration among soldiers who have been fighting against Tuareg rebels seeking independence, but feel the government has failed to provide them with adequate arms and ammunition. This news had a negative impact on the shares of gold mining companies operating in the nation, and analysts and investors appeared concerned about the impact this political problem could have on sales and perception. Especially hard hit was Randgold Resources (LSE: RRS,NASDAQ:GOLD) whose stock saw a 13 percent drop on Thursday. Over 5.8 million shares were traded in the two days following the military action as opposed to a three-month average of about 600,000 shares. JP Morgan downgraded Randgold's stock from neutral to underweight and Citigroup changed its rating from buy to neutral. A number of other miners operating in the country saw weakness in their shares following the event, including Cluff Gold (LSE: CLF,TSX:CFG), IAMGOLD (NYSE: IAG,TSX:IMG), AngloGold Ashanti (NYSE: AU), and Avion Gold (TSX: AVR,OTC Pink:AVGCF). Several of these companies, including Randgold, issued statements saying they are monitoring the situation, but operations are continuing normally. Gold Fields (NYSE: GFI), which also witnessed stock price declines after the takeover, is an exception. The company reportedly stopped drilling at its Yanfolila exploration site. At the time of publishing, the company had not responded to requests for more information about this decision. The initial shock in the equity markets appears to have faded rather quickly, and most of Mali's gold miners are on much better footing now than they were immediately after the event.
The story is still developing, but the international community has quickly snapped into action with the African Union suspending Mali, and the EU, World Bank, and African Development Bank cutting off Mali's development aid.This week it was announced that the airport would partially reopen for civilian transport. It remains unclear when the borders, which were also closed, will be reopened. Takeaway for investors Emerging nations are increasingly relied upon to play key roles as both consumers and suppliers. With that dual expectation comes the growing ability of emerging nations to impact global markets. India, China, and Mali's national news highlights that and serves a reminder that despite popular sentiment or comfort levels, there are still notable financial and political risks associated with emerging markets, and assessment of them is an ongoing requirement. Securities Disclosure: I, Michelle Smith, do not hold equity interests in any of the companies mentioned in this article. Nations Put Pressure on Gold from Gold Investing News