Gold prices (
GLD
,
quote
) in China are at an unreasonable level according
to China's largest gold producer, while prices fell in India,
New York and London thanks to uncertainty over America's fiscal
cliff negotiations.
[caption id="attachment_69414" align="alignright" width="300"
caption="A vegetable seller draped with gold in Sikkim, India"]
[/caption]
Gold fell by Rs 400 to Rs 32,000
($580.13) per 10 grams in India's bullion market today,
following the end of Diwali (the Hindu festival of lights)
and India's festival season, reinforced by a weakening global
outlook.
Gold has fallen to a one week low in global markets after a
report from the World Gold Council showed demand declined 11%
in the third quarter from the previous year, thanks to China
-- the world's second-biggest consumer after India, cut both
investment and jewelry purchases.
Meanwhile an executive of China's largest gold producer by
output, Zijin Mining Group Co., says
current gold prices in China are too high to
sustain
, and will hamper investment abroad according to China Business
News.
Lan Fusheng, vice chairman of Zijin Mining, said in an interview
with Dow Jones Newswires that "Prices have been boosted not only by
people's needs to hedge risks, but also by speculations." He added
that he thinks it would be sustainable for gold prices to stay at
$1,200-$1,300 per ounce in the next few years.
Gold prices closed at $1,765 per ounce today, up roughly 34%
from the low of $1,318 in January. Gold peaked at $1,890 per ounce
in mid-August.
China Business News reports that Lan isn't optimistic about gold
prices or the global economic situation next year. If the European
debt crisis remains, investors are likely to turn to the U.S.
dollar and gold prices will decline accordingly, he said.
"Rising gold price is good to company's profit, but it makes
overseas investment more risky and much more expensive," said
Lan.
Gold prices are likely to face selling pressure through the
weekend
given the political deadlock as Democrats play hardball with
Republicans over the looming "fiscal cliff", where Bush tax cuts
worth $600 billion expire and are tied to deep spending cuts
to defense and social programs which all kick in on January 1.
The Congressional Budget Office (CBO) estimates that if the game
of chicken over austerity sees neither sides blinking, it will
shave a hefty 0.6% off U.S. GDP growth next year, likely
tipping the economy into recession in the first half of 2013.
What's worth remembering is that the fiscal impacts of 'going
over the cliff' are being somewhat overstated by many in the media.
This is not like the debt ceiling debacle where the U.S. would
default on its obligations on the day. Tax revenues are not
collected on January 1 2013. Cuts to defense and social programs
would take time to be phased in and ripple through the economy. The
fiscal cliff is more of a slope, and investors would be wise not to
join the panicking hordes when planning their gold investment
strategy over the coming months.
Regardless, in an environment where investors are counting on
the U.S. recovery continuing to firm in order to countervail
European and Asian headwinds, even the slightest possibility of
slipping into recession again is negative for market sentiment.
Investors and traders should closely monitor the war of words
between the two political parties. Signs of persisting deadlock
should amplify risk-averse tendencies. Gold is at further risk of
declining as the negative mood boosts safe haven demand for the
U.S. dollar, which puts downward pressure on metals denominated in
the currency.
Daily FX reports that gold prices are turning lower with
resistance at 1732.33, the 23.6% Fibonacci retracement. Near-term
support is at 1693.06, the 38.2% Fibonacci level, a barrier
reinforced by a rising trend line set from late June (now at
1688.55). A drop beneath the latter level targets the 50% Fibonacci
level at 1661.32. Alternatively, a push above resistance
targets the 1790.55-1802.80 area.
