Good Day,

We're seeing the first more substantive drop in gold values in quite some time this morning. Gold spot prices have touched a low near $1047 in the hours preceding the NY market's opening. A bit of stability in the USD (trading near 75.50 on the index) and a small dip in crude oil (last seen just under $75 per barrel) contributed to the emergence of profit-taking, but the overriding component in this morning's roughly $12 drop (some $10) was attributable to predominant selling of the metal.
Gold has now managed above-$1K daily finishes since the first of the month, and has done so absent any significant retracement, consolidation, or profit-taking. The culprit as well as the catalyst here remains the USD - which, while evidently oversold, is not benefitting from any substantive official support aside from last week's verbal nods and scattered Asian central bank buying (those were good for about 1 percent's worth of a 'rebound').

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New York spot gold prices commenced trading on a down note this morning, with the yellow metal showing a $12.30 per ounce loss in the first few moments of action. Silver fell a quite substantial 44 cents at the open, and was quoted at $17.44 per ounce. Platinum lost $21 to start the session at $1338.00 an ounce, while palladium dropped $4 to $323.00 per troy ounce.

The breach of the $1050 level might engender additional liquidations in coming hours, however current support is thought to be found at near the $1020 level - should it be approached. It's all about the dollar still, and will remain the case for the foreseeable future. The mountain of speculative, leveraged long positions looming over the NY market still presents plenty of questions and has more than one analyst fretting about the eventual outcome.

As such, the Thursday decline could not come at a better time as far as potential buyers in India are concerned. Today's calendar marks the traditionally biggest day for gold sales in the country. Local gold watchers fear that sales might record a fall of as much as 75 percent compared to the amount of bullion that was sold one year ago.

Under normal circumstances, as much as 20 tonnes of the yellow metal finds its way into shoppers' hands as a symbol and harbinger of prosperity on the occasion of this festival. India's womenfolk and countless temples are thought to be hoarding as much as 15,000 tonnes of gold (482 million ounces of metal valued at over half a trillion dollars) or about 10% of the total stocks of above-ground gold. The country currently consumes two, or three times as much bullion as China does. More importantly, India is also sitting -literally- on approximately 20,000 tonnes of untapped underground gold reserves. In recent months, the Indian government has shown concerns about the country's overdependence on imported bullion for satisfying internal demand.

Given this year's stratospheric gold prices, the throngs of window shoppers in India might turn into actual buyers only provided they hunt for smaller pieces. Local dealers have been focusing on one and two-gram coins and the traditional premia associated with the purchase of fabricated items appears to be largely absent from price tags around India's bazaars.

Reports received thus far today, appear to suggest that shoppers are indeed, biting. Not only the gold they are testing, but likely their tongues as well as they reach for the pocketbook - and heeding the calendar more than the 1,600 rupee per gram price tag attached to various small, shiny coins and other objects. Silver sales (at 875 rupees per ounce) could be the ultimate beneficiary of the spike in gold as Indian women are becoming increasingly attracted to the less costly white metal.
No such problems are in evidence over at Harrods London department store. A teaming up of the retailer with PAMP refiners is now enabling well-heeled Londoners to step out of their Rollers and snap up a hefty 400 ounce (12.5 kilo) bar if they feel their wealth is being threatened.

Have a Nice Day!
Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America