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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Gold Prices Just Did Something They Haven’t Done All Year

Gold bars

Finally the global gold market is getting some good news from its top consuming nation — India.

Reports earlier this week suggest that something very unusual has just happened with India’s local gold prices: they’ve jumped to a premium above worldwide bullion prices.

That’s big news because — so far this year — India’s prices have been lagging the rest of the world. With gold here selling at discounts of $50 or more per ounce below average global prices.

But that situation has now apparently reversed itself. With local media reporting that gold sellers in Mumbai’s Zaveri Bazar were quoting gold at $1 to $2 above benchmark pricing. Marking the first time this year that India’s prices have pulled back to parity.

And that’s a critical observation for all participants in the global gold sector.

Here’s why.

As I’ve discussed in the past, India’s buyers tend to act as a floor for the gold market. When gold prices rise (usually driven by speculative trading in places like New York and London), India’s buyers tend to stay away from the market — waiting for a correction to offer a better buying opportunity.

That’s exactly what we’ve seen so far this year. With gold prices rising from near $1,000 to as high as $1,350 per ounce, India’s buying all but dried up. In fact, stats released this week show that India’s gold imports for January to September likely fell 59% to just 270 tonnes — down from 658 tonnes in the same period in 2015. Related: The Coming Oil Price Crash

That lack of buying caused gold prices across India to sag into discount, as buyers waited for better rates to prevail.

And this week’s news shows that Indians now feel that buying opportunity is at hand. With reports suggesting that bullion’s recent plunge to $1,250/oz has lured buyers back into the market.

Such a return of Indian buying is typically a sign that the market has reached bottom — with an influx of new purchases helping to set a floor under prices. Watch for gold to stabilize over the coming weeks, perhaps setting the stage for a renewed rally.

Here’s to getting back in the market

By Dave Forest

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