Gold In India

Gold is fighting back to $900, but a warning light is flashing with gold in India.  Congress continues with pork in the “stimulus” bill, as usual, while imports and sales of gold in India stall.

The Fed released their statement and stood pat with the same message that they had released after their last meeting.  They are standing by their 0% interest rate and have indicated their willingness to purchase long-term U.S. Treasuries, if need be, in order to turn the financial crisis around.  With gold pushed back under the $900 level it appears that full speed ahead with the printing presses is the order of the day.  As of this time, the DOW is down 105 at 8,270, the NAS is down 30 at 1,527, the DXY is up .299 at 84.874 (apparently dollar buyers haven’t figured out the ramifications of the Fed’s statement and the “stimulus” package) and gold is up $9.60 at $896.00. The battle for gold at the $900 level continues.

As more information comes out on the “stimulus” package, which passed the house yesterday with no Republican votes and 11 Democrat defectors, the odds increase that investor’s will start to see how unstimulating the bill really is.  Pork because you have the votes is not “change”, but printing money and new debt spells inflation anyway that you look at it.  For more information on the “stimulus” package see yesterday’s post,  “Gold and the “Stimulus” Package”.

The back and forth action in the quest for safety continues as stated by Matt Zeman, a metals trader at LaSalle Futures Group in Chicago.

We’re seeing a bit of bounce in gold because of what the equity markets are doing now. Investors are backing out of equities and going to gold and other assets that are viewed as safer.

April gold futures rose $7.30 (.08%) to $897.30 an ounce at 10:34 a.m. on the Comex, after hitting a low of  $875.70.

We will just have ride this out until we see which side wins the current battle for the the $900 level.  Ideally we could spend some time in a sideways trading range until a firm base is built before a major push through $900 is made.  If the Senate passes the “stimulus” package, which seems a certainty at this point, the dollar should accelerate down and gold should benefit greatly.  I say should because there is one disturbing report out there that may cloud the picture.

The global financial crisis, not to mention the terrorist attacks in Mumbai, have drastically slowed imports of gold into India.  This is significant, if it is a trend rather than an aberration, because India is the world’s largest importer and consumer of gold in the world.  Thursday, the Bombay Bullion Association reported that India’s gold imports have plunged by a whopping 90%!  Gold imports in January ’07 dropped 1.2 tons  compared with 18 tons this January ’08.  Falling demand is causing the drop in imports which fell 47% in ’08 to 402 tons.

This trend is something to keep an eye on, but I don’t feel that it is capable of derailing gold’s next leg up.  While gold stays in a trading range, jewelry purchases can have a temporary effect on the price of gold.  The next major move up in gold will be as a currency rather than as a commodity.  Savvy buyers in India look for bargains before they purchase.  I believe that once they realize that the horse is out of the barn for a good long run they will come back into the market in droves to purchase before it moves up more. The current sentiment is that gold is too high and it will come down, which encourages people to wait and buy the dips.  When gold takes off this sentiment will change to buy now before it increases .  In the interim, the buying in India is something I want to keep an eye on as an indicator of the start of the next move in gold.

Till next time, good luck and good trading!

More Gold Market Analysis:

• Gold Locked In A Trading Range
• India’s Announcement Pops Gold Up!
• $1000 Goes Up in Smoke
• Capitalism in the Cross Hairs!
• Fed Ushers in Gold Era

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