After what looked like a miserable start to the day gold climbed to a six-week high yesterday and settled about 2% higher at $1,262, above the key resistance level of $1,260. This was in part thanks to short covering and some technical buying, however news on both India and China’s gold markets and a poor performance in U.S. stock market and economic data contributed to the boost.
Gandhi weighs in on gold market
The unconfirmed news that India’s government is considering lifting some of its old restrictions helped to bring renewed confidence to the market. An Indian television network reported that Sonia Gandhi, leader of India’s ruling Congress party, has asked the government to review the strict rules on gold imports.
The most stringent of the measures, put in place to help the current account deficit, have not only led to increased smuggling thereby impacting neighbouring countries’ gold markets, but also the hundreds of thousands of gold artisans who have lost their livelihoods.
China – does it really impact the gold price?
Weak economic data from China overnight apparently worked in the gold price’s favour. The flash PMI gave the lowest reading in six months and suggested a contraction in the manufacturing sector. Previously, such events pushed the gold price down as speculators assumed the raw commodity sector would suffer. However yesterday it seemed to prompt safe haven buying as investors looked to sell equities in exchange for gold. But even this is a daft assumption, one has to question how much impact Chinese demand currently has on the gold price given the price action in 2013 despite record demand from China. Why would it suddenly affect it now?
Source Hard Assets