The WHOLESALE gold price slipped back below $1400 per ounce Tuesday morning in London as world stock markets rose and the Indian government tightened restrictions on gold importers once again.

After Monday's weak US manufacturing data gave gold what Commerzbank calls "sufficient fuel" to touch the $1415 level – identified by some technical analysts as key resistance – the gold price dropped $8 in 15 minutes mid-morning.

With immediate effect, "Any import of gold on consignment basis [where the buyer has yet to pay for the gold] shall now be permissible only to meet the needs of exporters of gold jewellery," the Reserve Bank of India said in a statement.

The world's #1 consumer market for physical gold, India recorded a trade deficit worth $17.8 billion in March – equal to 11% of economic output.

Some 40% of March's deficit was due to gold bullion imports.

"There's no doubt that India is a strong demand market for gold," says Manne Rasmussen, an analyst at the $650 million Vontobel Belvista Commodity Fund in Zurich, quoted by the Wall Street Journal yesterday.

Rasmussen says India's surging gold demand was a reason Vontobel recently closed a bet on the gold price falling.

India's government yesterday corrected the 262 tonnes of gold imports reported for May by Finance Minister P. Chidambaram to 162 tonnes.

That was still more than all Indian gold imports during April to June 2012, however.

"Physical buying in India [was already] virtually non-existent" Tuesday morning, said brokers Marex Spectron in a market note, "and Chinese demand is much smaller above $1400."

"A recovery in the stock market is [also] currently a negative factor for gold," Peter Fertig at Quantitative Commodity Research Ltd told Bloomberg today.

With developed world stock markets gaining 14.5% so far in 2013, according to Reuters data, the gold price has dropped 15.7% and silver bullion is down more than 25%.

Western households cut their demand for physical gold in May from April's 16-month high, but remained positive according to Bullion Vault's latest Gold Investor Index.

"There is a case to be made for a short-covering rally in the near term," says TD Securities in Toronto, pointing to the record-large bearish betting by speculative traders in US gold futures and suggesting a possible move "into $1500 per ounce territory."

Thursday's interest-rate decisions in London and Frankfurt, plus Friday's US jobs data, "[are] likely to keep price action choppy," says Credit Suisse.

"Add in a dash of short-covering and it would not be too surprising to see gold reach the next technical resistance level of $1422/24 in the next few days, perhaps even $1445/50.

"However, we think that any short-term rally will be limited."

Fellow London market maker UBS agrees, saying that "Gold is seemingly becoming less relevant in the current environment...prompting specs to take an aggressive short position in gold."

If Friday's US non-farm payrolls report is weaker than analysts expect, "The dominance of shorts increases the risk of a short-covering rally" in the gold price.

Stock markets rebounded worldwide meantime Tuesday morning, with Japan's Nikkei index regaining half of Monday's near-4% drop.

Turkish equities also rose sharply, as did the Lira and Ankara's government bond prices, despite fresh anti-government protests across the country.

One protester died Monday in the city of Antakya, near NATO member Turkey's border with war-torn Syria.

Despite prime minister Erdogan flying out to a planned meeting in Morocco, police today deployed water cannon around his official residence.

Turkey imported 43.5 tonnes of gold in May, according to the Istanbul Gold Exchange, just shy of April's 5-year record.

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Buy gold online at live prices

Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash Archive

Only logged in users are allowed to post comments. Register/ Log in

The Market Oracle is a FREE Financial Markets Forecasting & Analysis web-site.
(c) 2005-2024 MarketOracle.co.uk (Market Oracle Ltd) - Market Oracle Ltd asserts copyright on all articles authored by our editorial team and all comments posted. Any and all information provided within the web-site, is for general information purposes only and Market Oracle Ltd do not warrant the accuracy, timeliness or suitability of any information provided on this site. nor is or shall be deemed to constitute, financial or any other advice or recommendation by us. and are also not meant to be investment advice or solicitation or recommendation to establish market positions. We do not give investment advice and our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or any other financial instrument at any time. We recommend that independent professional advice is obtained before you make any investment or trading decisions. By using this site you agree to this sites Terms of Use. From time to time we promote or endorse certain products / services that we believe are worthy of your time and attention. In return for that endorsement and only in the cases where you purchase directly though us may we be compensated by the producers of those products.