Gold falling as Indian demand may drop 53% in 2012

In The Lead: “See PM Tallies As Seen By CPM”

The midweek trading session in New York opened with lower prices across the precious metals boards, particularly gold, as crude oil slipped by a notable amount and as options expiry and month-end related trading book activities became visible. The US dollar remained above the 79 mark on the trade-weighted index refusing to give up too much value ground following relatively dovish comments on Tuesday by Fed Chairman Bernanke.

Standard Bank’s morning report noted that “Yesterday, enthusiasm for precious metals waned as the boost from Bernanke’s dovish comments the previous day began to fade. Evaporating physical demand also pushed gold lower, dragging down the rest of the complex.” The degree to which the gold market is hyper-sensitive to hawkish and/or dovish words (any at all) that are uttered by the Fed goes to show just how much of last year’s rallies were built on the confidence that the Fed will stand ‘pat’ for-basically-ever.

This morning, market participants awaited US durable goods orders and when that data was released it indeed did not disappoint. Driven by strong demand for heavy equipment and commercial airplanes the monthly metric showed its fourth gain in five reporting periods, albeit the actual figure was somewhat lower than what some economists had anticipated (closer to 2.9%).

Spot gold was down $9.60 at $1,671.00 per ounce while spot silver fell 24 cents to $32.35 the ounce. Gold is at a critical juncture on the technical charts as several averages converge at this point, near $1,680 per ounce. The $1,704 overhead resistance level (and eventual $1,730 target that such a development might portend) has not been challenged and several trading houses have hinted at eventual attempts to test either the $1,650, $1,500 or even the $1,550 supports in due course.

Physical gold demand is seen as dissipating above the $1,700 level while possibly re-emerging under the $1,650 area. Indian jewelers remain on the sidelines, arms crossed and brows furrowed, while the government reassesses the imposition of a fresh round of import duty hikes on bullion. The trade has been hibernating since March 16 in protest, but the country’s Finance Minister continues to opine that Indians are spending “precious foreign exchange” to buy the…precious metal.

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