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Politics, Indian Festival Demand and Gold Price

Stocks, oil, gold, Euro all fell on Monday as political news from Europe’s Holland and Hollande unnerve markets and boost demand for U.S. dollar and Treasury. Gold futures fell $10 to $1,632.6 on Monday after falling $17 the week before.

The Dutch cabinet resigned on Monday when the government could not get enough backing for the austerity measures in next year’s budget. In France’s first round of Presidential election, Socialist candidate Hollande won 28.6 percent of votes, beating the incumbent Sarkozy who got 27.2 percent. The second round of French election coincided with Greece’s election on 6 May. These results suggest the European austerity measures advocated by Germany are meeting major resistances within many countries, including its fiscal-rule ally, the Netherlands. The political turmoil would further raise bond yields aggravating the sovereign debt crisis. A larger crisis in Europe would boost the safe-haven demand for gold.

Europe’s manufacturing continued to contract as the burden of austerity weighs on the economies in contrast to the U.S. reporting higher than expected new homes sales at a yearly rate of 328,000 in March as well as better stock earnings reports.

Gold futures rebounded $11 on Tuesday to $1,643.8 as dollar index erased its gains for the week when European concern eased off a little after the Spanish and Dutch bond auctions.

In the East, Indian customers are celebrating Akshaya Tritiya, the auspicious day for Indians to buy gold for luck and prosperity. Though consumers swamped into the stores late into the night, the Times India reported that gold sales on Akshaya Tritiya might reach between 50 to 55kg compared to 65kg last year, as local gold price surged almost 31% to 29,290 Rupees per 10 grams. On the other hand, investors’ purchase of the largest Indian gold ETF surged 11 times today, according to Bloomberg. Local gold ETF holdings also reached a record of 98.9 billion rupees as of the end of March.

Supportive news for gold came from the IMF report that in March both Mexico and Russia added more than 16 metric tons of gold to their reserves, followed by Turkey, 11 tons, Argentina, 7 tons and Kazakhstan, 4 tons.

Next, gold investors will scrutinize the release of the FOMC policy statement at around 12:30pm EST on Wednesday for any clues for policy changes.

Austin Kiddle
Sharps Pixley, London

25 Apr 2012 | Categories: Gold

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