Gold forecasts trimmed 18% in 2012 on QE3 speculation and India

In the Lead: “See PM Fundamentals As Seen By CPM – Part II”

The final precious metals trading session of this week started off on a mildly positive note as commodities overall firmed up and as the US dollar slipped to under the 79 pivot point on the trade-weighted index. Month and quarter-end book-squaring were seen as dominating the action for the remainder of the day but yesterday once again presented a headache for gold bulls who had become somewhat emboldened by certain words of Mr. Bernanke’s earlier in the week.

The first quarter’s performance tally shows gold being ahead by 4% since the first trading day of the year. Platinum, on the other hand, is some 17% higher than it was on Jan. 3. A quick survey of equity indices indicates the S&P 500 is ahead by nearly 12% while the Nasdaq Composite is up by almost 19% on the quarter. Such gains would normally be nice enough if they were the tallies for a full twelve months. Stock market participants continued to receive decent US economic news this week as well: Consumer spending climbed above forecasted figures, jobless claims continued at a four-year low level, GDP was un-revised at 3% for the final quarter of 2011.

Analysts at Standard Banks (SA) opine that while commodities had a nice start for first few weeks of the year, players in that space are well-advised to keep an eye out for developments from China. Setbacks in that country’s economy have dampened the strong out-of-the-gate performance in commodities since they first became publicized. Key metrics such as bellwether copper demand, cement production, electricity output, and manufacturing activity in China are critical watch-list items at this juncture.

Standard Bank also reminds us that the principal price-moving agent in commodities in Q1 has been speculative activity of the long kind (save for gold, whose open interest as a percentage of net length fell somewhat) based on QE3 expectations by a crowd that has become more habituated to easy money than Charlie Sheen had been to certain…substances. Practically every gold perma-bull now blames the Fed’s reluctance to provide QE dough to play in the markets with for the souring of the mood in gold. Seeking “salvation” from the US central bank may not prove to be the wisest strategy at this juncture, as you will see below.

Spot dealings opened with a bid-side quoted at $1,667 in gold and at $32.50 in silver. While there is still scope for attempts at taking out overhead resistance near $1,680 and $1,704 in gold (with a possible $1,730 end-target) the going has been anything but smooth amid an absence of not only QE3 but bullish news on the physical or ETF front as well. Over in India, the near fortnight-long strike by that country’s jewelers continued but Finance Minister Mukherjee, according to Marketwatch, “has so far given no hint that the government intends to review the import taxes on gold. “I don’t think the government will change its position,” said Badruddin Khan, an analyst at Angel Broking.

“In general, when they do adjust parts of the budget, it’s for essential commodities, not for bullion.” New Delhi first slapped a 2% hike on gold in January to start plugging the holes in the government’s finances and the country’s current account deficit, a measure of the nation’s debt to foreign creditors. Gold demand was also cited as a factor in the slide of the rupee last year, which lifted the costs of India’s import bill.”

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