Sharp decline in demand for gold from Indian jewelers

The gold price relinquished its modest gain Tuesday morning after a better than expected economic report on manufacturing activity in the U.S.  The price of gold climbed to as high as $1,672.12 per ounce in overnight trading but subsequently dropped to $1,661.14 after the April ISM index came in at 54.8 – above the 53.3 level markets were expecting.

Despite yesterday’s slight uptick in the gold price, the yellow metal finished the month of April fractionally lower, by $2.79, or 0.2%.  In doing so, the spot price of gold dropped for the third consecutive month – a development it had avoided since January through March of 2001. 

 However, on a year-to-date basis it remains higher by 6.6% as it looks to post its 12th straight annual gain. The gold price was the recipient of a headwind from HSBC on Monday, after the firm lowered its average gold price forecast in 2012 to $1,760 from $1,850 per ounce and in 2013 to $1,775 from $1,790.  James Steel, the firm’s Chief Commodities Analyst, wrote in a note to clients that “Our revisions follow a sharp decline in demand for gold from Indian jewelers after a proposed doubling of import levies, and a steep reduction in market expectations of further quantitative easing (QE) or other monetary stimulus in the aftermath of the congressional testimony by Fed Chairman Ben Bernanke on 29 February.”

Although HSBC reduced its forecast, the firm said that it still anticipates higher gold prices than current levels in the years ahead.  Steel based his stance on further geopolitical uncertainty around the world and central bank demand for the yellow metal, among other factors.

In contrast to Steel, Alexandra Knight – an economist at National Australia Bank Ltd – offered a more constructive short-term outlook on Monday for the gold price.  “Concern about Spain and its budget might have prompted some demand for safe-haven assets,” Knight contended. “I don’t think anything’s going to change in Europe in the near term that’s going to make people feel comfortable about the situation there, and that will keep gold supported above $1,600.”

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