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By Stuart Burns

As far as its complicity in the gold market -- which we outlined in Part One -- India will likely continue to make efforts to curb imports to improve the short-term balance of payment position, even if in the process they also create a pent-up demand that will eventually have to be satisfied. And in the meantime it could encourage a return to the bad old days of Indian gold smuggling.

For most metals, such a crushing fall in prices would result in widespread mine closures. Indeed, according to William Tankard, research director at Thomson Reuters GFMS, quoted in another Financial Times article, at prices of $1,200 a troy ounce, roughly half the gold mining industry is losing money.

But for gold, mining is only part of the supply side story. For example, ETF sales for the last 20 weeks have totaled 588.9 metric tons, according to Standard Bank -- higher than the annual mine production of any country. Also, gold scrap accounts for 36% of global supply and while ETF sales have risen, scrap arisings have fallen sharply as the price has dropped.

According to sources quoted in the Financial Times, the gold price would have to drop to $1,000 an ounce for jewelry demand to rise and scrap supply to fall sufficiently for there to be a significant enough change in fundamentals to reverse the price. In the meantime, the only plausible alternative is a shift in the Fed's position on tailing off quantitative easing, which seems unlikely given recent announcements.

The Bottom Line

For all but committed-yet-bruised gold bulls, therefore, the conclusion is for gold to enter a period of largely sideways trading for the second half, if not a continuation of the first-half falls. Either way, you would have to be a brave individual to jump back as the market stands today.

Source: Gold Price Outlook: Only For The Brave