Euro Slump: Good or Bad for Gold?

Does the Eurozone crisis point north or south for US-Dollar Gold Prices...?

THOSE INVESTORS who were banking on bad news from Europe helping Gold Prices rise may have to think twice, writes Geena Paul in London for India's Commodity Online.

With several market analysts predicting a big bull run in Gold Bullion, investors have been rushing to gold as a safe haven following the disastrous news spread about the financial crisis in Spain, Portugal and Greece. And, this week more doomsday predictions cropped up about an imminent slump in China also.

When all market pundits were busy forecasting that gold will cash in on the impending doom in Europe, there are other indicators which favor a fall in Gold Prices. In particular, it seems the world's biggest gold consumer, India, is shying away from the bullion market with the current price ruling so high.

There are indications that Indian households may buy less gold than usual in the coming few days, a critical period for seasonal gold demand. The first hint of this came when India reported a fall in gold imports in April.

In normal circumstances, India should be buying more gold this year, as the Meteorological Department predicts a good monsoon, which means India's rural population will have more money in their hands this year. But, this has not helped gold improve its demand in India. The stumbling block is the high price.

The Indian market is waiting for the Gold Price to slide. This was obvious when Indians rushed to Buy Gold when its prices fell in April. But the price moved up once the Greece and Spain crisis spread.
 
If the demand remains this way, Indian consumers will be buying less gold on the auspicious occasion of Akshaya Thritiya – a day chosen by people across the country for weddings and starting new ventures – which falls on May 16. In normal circumstances, it witnesses a huge demand for gold in India.

People rush to jewelry shops on this day to Buy Gold as it is an auspicious day to buy the yellow metal. But in the run-up to the festival, India's gold imports in April were between 34 and 37 tonnes, down from last year's 49.8 tonnes, and recording the year's first monthly fall.

Imports in January to April, however, were at 126 tonnes, up 74% from the same period a year ago, suggesting a good recovery from 2009's sharp drop. Most Gold Bullion dealers and jewelers, however, feel that imports in the April-June period could slow down from the previous quarter if prices keep up their tempo.

Gold of 99.95% purity has gone up from an average of 16,604 Rupees per 10 grams in March to Rs 16,709 in April. While the average price of overseas Spot Gold has risen by 3.1% in a month to April, gold in Mumbai rose by 0.6% as the Rupee recovered from an average of 45.48 to the Dollar in March to 44.47 in April.

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