Gold following the lead of oil and U.S. dollar

Tuesday’s trading action opened under somewhat more subdued conditions as a slight easing in the level of apprehensions surrounding Japan and the MENA region induced global investors to seek profits in equity and risk markets just a tad more. Dollar selling did not abate too much however, as the US currency scraped the 75.28 level on the index and as it neared the “outer markers” of its trading channel against the euro, at $1.424, while trading at ¥80.925 vis a vis the Japanese yen.

The European common currency received support from yesterday’s assertion by ECB officials that they remain on course for an April interest rate hike, despite the question marks related to the global economy that the Japanese quake of March 11 has engendered. Similar types of interest rate “concerns” could soon be on display by British central bankers, as February's surprise rise in the UK’s inflation rate “will worry the Bank of England(BoE)” according to market watchers.

The BoE has been trying to bring domestic inflation back to its 2% target, but has been stymied by surging energy and food costs (a trend that is not limited to British price tags). Thus, the BoE will now likely see a sharpening of the debate over whether interest rates should rise sooner as opposed to later in order to mitigate emergent consumer price pressures.

Spot gold dealings opened with a $2.40 per ounce loss, quoted at the $1,424.70 bid level in New York as of 8:20 AM local time. The gold market still appears to be taking its trend leads (and remains in the broader $1,400 - $1,450 range) from crude oil and the US dollar’s gyrations – both of which, in turn, are very much intertwined with the fluid situations still manifest in Japan and the MENA region.

Morgan Stanley estimates that, based on a survey it has conducted with over 1,600 Indian middle-and-upper-income households, gold demand in the world’s premier bullion consuming country might fall by 16% in the current year. The survey found that India’s gold appetite appears to still be suffering from “sticker shock” and that Indian household heads still rank property at the top of their desirable list of investments, despite bullion’s recent performance.

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