RISK/REWARD RATIO FAVORS LONG SIDE
Although gold remains vulnerable in the short term, the risk/reward ratio increasingly favors the long side — and we are advocating more aggressive investment purchases should gold again dip below $900 an ounce.
Even if the metal first weakens, the overall picture is looking a little brighter and, before long, we could see the gold move to a somewhat higher trading range.
Importantly, the selling of old jewelry and other gold-bearing items in many global markets abated when prices recently dropped briefly below $900. And, more recently, even with prices trading in the $920 to $940 range, the quantity of recycled metal returning to the market is diminishing.
Scrap Update
India, in years past, has been the single-largest gold-consuming nation with annual imports often over 600 tons (19.3 million ounces). But so far this year, India has imported virtual no gold and may have briefly become a small net exporter — some in the form of old coins that may be exported legally . . . and some in the form of melted scrap that may not be legally exported but is smuggled by high-speed boats across the Arabian Sea to Dubai and other Arabian Gulf ports.
On a positive note, however, our friends in the Mumbai gold trade expect imports will soon resume, as the traditional festivals and wedding seasonals turn more hospitable to gold demand. Nevertheless, imports, which fell to roughly 400 tons last year, may amount to no more than 200 to 250 tons this year as much of the local demand for investment-grade jewelry will be met by local supplies from recycled metal.
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