Gold June futures fell for a third day, declining as much as 1% to $1,587.50 an ounce, the lowest price since Jan. 3. Comex Gold June futures sold off sharply on Tuesday and Gold prices slumped to a fresh four-month low of $1,595.50 an ounce. The euro tumbled for an eighth day against the dollar in the worst run since 2008. Commodity & Equity Markets were both down for the day. It may seem surprising that in the midst of a lot of current Global financial gloom, Gold didn’t revert to its safe-haven status. Momentum from Tuesday might be enough to carry prices lower, especially if France and Greece ramp up the rhetoric against current euro-zone policy. The risk of Greece leaving the euro is very high. Gold is weaker in response to a stronger U.S. dollar, although price dips may bring about some physical demand. Comex gold is sharply lower with the euro and risk assets on worries about Greece combined with election of a new president in France. The market dropped below what was strong technical support at the April low of $1,613.00, and below psychological support at $1,600.00. A rallying U.S. dollar index and lower crude oil prices helped to send gold and silver prices downward. The strength in the dollar is not by its own merits. It is aided by the weakness in the Euro which is weighed under pressure from the increasing severity of the sovereign debt crisis and deterioration in the economic health of peripheral nations that show no signs of improvement. The Euro currency deteriorated on the world foreign exchange market as traders sought out the U.S.$ and U.S. Treasuries for safe-haven assets. The Commodity markets are more keenly focused on the serious trouble that Greece’s presently unstable government has caused for the entire EU, regarding dealing with its collective financial problems. Greek political dissension has been the primary concern, with a new coalition forming in strong opposition to the austerity measures in place. Crude oil futures prices are hovering near their 4 to 5-month low, and are just above the $95.00-a-barrel level.
Gold prices have a strong technical support at $1,540 on the downside & should ideally bounce up from this level. Any breach with a sustained momentum below this level may signal a strong bearish trend.
Gold imports by China increased as rising incomes and concerns about inflation boosted purchases. Shipments were 72,617 kilograms in the first two months, compared with 10,564 kilograms a year ago. On the other hand, demand fromIndiahas slowed down considerably. There have been a series of distractions hampering demand. Earlier, it was a conscious attempt on part of government aimed towards discouraging consumption by way of increasing levies over and above gold prices. Introduction of additional excise tax in mid-March prompted a majority of Indian jewelers to close for three weeks in protest across the country protesting the harsh moves, hurting demand from the world’s largest gold consumer. Despite the end of strike, demand has not much recovered on account of continuous increase in rupee denominated gold prices buoyed by depreciation in the Indian currency. Weakening in the Indian economic performance, its investment-grade rating & political uncertainty are driving the INR lower & will inversely push Gold Prices up, thereby motivating people to seek gold for a safety. The buying from Indian market would likely see recovery from here on and could be accelerated if we see some price corrections in the INR/US$ valuations.India’s decision to remove the controversial excise taxes on gold, silver and platinum jewelry should also provide some long-term support for Bullions, especially gold.
The central banks would likely continue to buy about 100 tons of Gold each quarter in 2012. Total investment fell 10% to 1,605 tons last year, but gold bar demand continues to climb by 37% to a record 1,209 tons. MCX Gold trading may see some bottom fishing at lower rates and in addition a weaker INR accelerates the demand for Bullions.