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I would expect that Syria, a major sell-off in Emerging Markets or debt ceiling talks in the US should support gold mining stocks. There are a couple of reasons why this is not the case:

  1. Profit taking after the strong rebound in the last couple of weeks
  2. Higher oil negatively affects profit margins
  3. Indian Rupee depreciation will have a noticeable effect on physical gold demand
  4. Emerging Market sell-off will have a negative internal effect on money flows and dampen physical demand

Particularly Indian gold consumers will have to dig deeper into their pockets because the Indian rupee has lost approximately 25% in value against the USD since early June.

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I'm sure less Indian gold demand will have an effect on the price of gold but very likely only marginal and temporarily. Maybe Indian's will even buy more gold as a wealth protection in the light of a potential rupee crash. There is a positive correlation between gold and the Indian rupee but not significantly.

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While gold mining stocks are correcting, I'm not surprised to see the price of physical gold increase since gold behaves similar as oil and is building up a risk-premium. Short-term, gold mining stocks will very likely consolidate for a brief period of time.

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But afterwards, I remain confident that gold mining stocks (GDX) will at least retest their resistance level at approx. USD 36 (more than 20% higher than yesterday's closing price). I would recommend investors hold on to their gold mining shares.

Source: Sell-Off In Emerging Markets Means Headwind For Gold Miners