Indian Gold Sales Will Prove to Be an Error

India has actually turned into a net exporter of gold because so many hoarders are cashing in their gold. India imported no gold in February and probably will not in March either, reported Reuters.

In 2008 gold imports fell by half to 396 tonnes as the selling of gold for scrap grew. This does help to explain why gold prices have not soared higher in the ongoing global financial crisis as a key source of demand has vanished.

Retail sales falling

Sellers might also be right in so far as the jewelry market for gold - still its largest use - is going to come under severe pressure as retail consumers cut back purchases of luxury products. Just look at those empty outlets for Cartier and Warren Buffett’s concern at plummeting jewelry sales at Berkshire Hathaway (BRK.A).

That said, yields on Indian government bonds are rising, putting a squeeze on bond prices, and in a world of competitive devaluations cash may not be the best place to keep wealth.

On the other hand, Indian retail gold buyers have been quite good predictors of gold market moves in the past, and their reluctance to buy could signal a short-term bear phase for gold prices.

However, such are the contrary forces from global investors looking for a safe haven asset that at present Indian sellers are being matched by global buyers.

And it should be remembered that investment capital flows around the world could easily out-spend Indians in the gold market by a huge multiple. Thus any setback to the gold price is likely to be small and short-lived.

Bear market rally

The global forces of money printing and public spending are working for gold while the rally in stock markets must surely shortly draw to a close. The question then is whether all assets will come under fire, as last autumn, or whether we will see a more discriminating sell off.

For the moment most holders of gold and silver would not want to risk being out of the market because the risk of missing out on a big surge of investment into precious metals is too high, and the downside looks relatively small. Indians do not seem to be thinking this way.

Comments

[NewToGold:]

I am new to gold, having made a good trade buying in at 78 (GLD) and selling at 98. However i gave gotten in again at 88 and now waiting and reading your articles greedily. (Plus Mark Buyrne). I have seen the comments a couple of times that Indians were good at calling the market, and I cant help taking a very simplistic view that they were good at calling the market because they made the market due to little investor capital driving demand (relative to Jewellery). Now that this is no longer the case, I dont think one should look to the indians for investment advice. I think rather that if demand continue from Investors, then gold has a shortish term upside (I also believe the the psycholgy of belief and if people believe in Gold as safe then they will keep coming, but that again, would tailor off if Gold starts to look expensive) so my view is that gold wil flatten at current levels with investor demand keeping prices there, and only when jewellry demand starts to go up again over the next 2 years will gold rise significantly. I think that gold as a safe haven investment is a newish thing at current levels and only golds status as safe haven (staying at a reasonable price level and not looking risky) will keep that at status quo. Just my thoughts as new and novice to the investment and gold game. Would love to get some thoughts on that.

Mar 27 05:26 AM

[robert99:]

Barring another large catastrophe, a drastic decline in the stock markets from these levels, or a drastic change in the dollar's status as the world's reserve currency, gold is likely to languish until the global economy begins improving - and even then, it may languish as investors choose equities instead of commodities. The nearly unanimous expectation of what's to come is inflation - and since that expectation is nearly unanimous, a strong argument can be made that higher inflation is already baked into the price of gold. If, on the other hand, it begins to look like inflation will be worse than most expect, gold will do well. Either way, there is a good chance that gold will trade flat for quite a while, with a large downward move at some point. My portfolio is about 15% gold, and I expect to maintain that percentage as gold consolidates for what I hope will be a move upward. If gold sells off, on the other hand, I will begin buying under $800, and will continue buying until my portfolio reaches a maximum of 30% gold, silver, and PGM stocks. Before gold's rise in the late 70's, gold sold off quite a bit (60% memory serves me correctly), and I expect something similar to happen this time as well.

Mar 27 08:26 AM

[Conan the B...:]

NewToGold: you are trading, yet you talk in terms of a 2 year time horizon.

If you plan to trade, put in stop loss orders or buy the DZZ or whatever. Trade.

If you are an Investor. Ride it out. It will be higher regardless of where it goes in the next few weeks.

IMO

Mar 27 08:29 AM

[robert99:]

Addendum: the sell-off may not be 60% - I'm thinking 25-30%, maximum.

Mar 27 08:33 AM

[sdavid0419:]

Inflation is the answer. Keep your eye on these key indicators of where gold will go. The gas pump as long as its $2 or more per gal hold on to your gold. The 30 oz. mayonaise jar panic if it goes over $3. Groceries are playing so many games to keep you from knowing what you are paying it is hard to recognize that prices are out of control. Sirloin steak used to be the good side of the tbone now its just about anything on the top side of the cow and its $10 pound. Watch closely the other so-called cuts such as NY Strip steaks which by definition DON'T have a bone. The sale NY strips have bones now. Watch the size and price of a loaf of bread and beware of the 3/4 quart gallon of milk. As to the electric bills that have become a joke...when the phone company deregulated 10 phone companies a day made a pitch to buy my phone service from them. The electric companies deregulated and not one company has asked me to switch and every company's bills have quadrupled. Don't believe the governments CORE INFLATION number as that has been rigged to be much lower than real inflation to also fool you.

I saw a gold party on the news the other night and a woman had a bag with about 5 ounces worth of gold. She got $190 and was delighted. In six months I am predicting that same $190 will buy her 3 bags of groceries!!!!!

Mar 27 10:54 AM

[GMiki1:]

Robert99, "Barring another large catastrophe..." We're not done with this one yet. It isn't solved in the slightest and that's the key as to why you must hold onto your gold and silver. The U.S. is insolvent, the dollar is going to drop further, commercial real estate is going to crash... well, you get the picture.

NewtoGold, Go to Kitco.com and start reading the various editorials there.

Mar 27 11:28 AM