GOLD BEHAVING MORE LIKE A RISKY ASSET THAN A SAHE HAVEN ASSET

Gold edged up on Wednesday after a successful Spanish debt auction eased fears about the euro zone debt crisis, but gains were capped as the euro remained under pressure ahead of a longer-term debt sale in Madrid later this week.

Gold was again little changed again in European trading on Friday morning, unable to find a strong direction and instead likely to replicate the recent volatile but rangebound trading pattern ahead of the weekend. 

Spot gold stood at $1,640.90/1,641.70 per ounce, down just 70 cents. It fell to its lowest since April 5 at $1,631.10. The metal has recently traded in volatile fashion in a tight band, unnerving investors - prices lost nearly one percent to a one-week low of $1,634.70 in the previous session after reaching its best in 10 days above $1,680 last week. 

Gold and silver continued to zigzag in recent days; even though both metals didn’t perform well during most of the month (so far). Their fall wasn’t sharp and they could change direction if there will be another speculative movement in anticipation for next week’s FOMC meeting.

Gold may have been undermined by news that the International Monetary Fund (IMF) raised its global economic forecast to 3.5 percent this year from its previous forecast in January of 3.3-percent growth.

The euro zone is still expected to shrink this year but at a slower pace of 0.3 percent than the previously forecast 0.5 percent. Meanwhile, developing economies such as China will grow even more this year, expanding at 5.7 percent versus its previous forecast of 5.5 percent. The US should grow 1.4 percent this year.

In addition, this morning's short-term bill debt auction in Spain went smoothly, with the country raising more money than anticipated at 3.2 billion euros.

This saw gold's safe-haven appeal fade, with investors looking to riskier assets such as equities, which rose today

On the physical side, an unexpected lowering of interest rates in India could lend some support to demand, which has been notably weak since its government introduced some changes to the import duty tax in March. This was despite the start of the spring wedding season and ahead of the auspicious Akshaya Tritiya festival that falls on 24th April. After Dhanteras,. The highest sale of gold is witnessed on Akshaya Tritiya.

Over in India, traditionally the world’s largest source of gold bullion demand, jewelers are reporting a 50% drop in sales ahead of next week’s Akshaya Tritiya festival – seen as an auspicious day in the Hindu calendar to buy gold.

According to a recent report, Perth Mint, which processes all of Australia’s bullion, decreased by 9.6% during March. This news might have been due to Jewelers strike in India during or a decline in demand for gold investments.

Either ways, if this trend continues, it may adversely affect gold’s performance in near future.

Gold has traded in volatile fashion in a tight band over the past two weeks, unnerving investors who have mostly preferred not to hold onto their positions. But short-selling has alternated rapidly with waves of safe-haven demand while macroeconomic conditions remain worrying. 

Gold price woes continue…

Gold continued its descent in Europe on Wednesday morning, extending Tuesday’s late sell-off to below $1,630 after the latest US FOMC minutes dampened hopes for more quantitative easing.Spot gold fell $16.80 to a fresh low since March 22 at $1,629.60 per ounce at one stage. It was last at $1,636.30/1,636.90, still down $10.80. 

Gold fell alongside other assets - global equities, energy markets and the euro - after the FOMC minutes reiterated that more monetary injection would only be needed if the economy worsened. Only two out of the 10 voting members supported a third round of quantitative easing (QE3) to stimulate the US economy, which, they agreed, was moderately improving.

Gold futures might have gotten knocked down again by Federal Reserve commentary, but analysts and traders suspect that the market will find some kind of footing before long.

They cite potential for bargain hunting after the recent sell-off and still-accommodative monetary policy, with short-term U.S. interest rates remaining at basically zero.

Gold has fallen sharply on other occasions this year following Fed policy communications. March13, the day this latest FOMC decision was announced, saw the spot market gold price drop 2% from the day’s high, while on February 29, gold fell nearly $100 an ounce after Fed chairman Ben Bernanke told Congress he saw potential inflationary pressures from rising gasoline prices.

Early in the year, gold rallied on growing ideas that the Fed would undertake further quantitative easing, with the June contract hitting a three-month high of $1,795.10 on Feb. 28. Further easing presumably would undercut the dollar and add to inflation concerns, which tend to help gold. Low rates also mean little so-called “carry cost” or the loss of interest earnings by holding a non-yielding asset such as gold.

Gold then came under pressure again in mid-March when Fed policy-makers met and their post-meeting statement was seen as more upbeat on economic prospects than previously was the case, reducing the likelihood of still-looser monetary policy. Gold got another lift in late March when Bernanke wondered about the sustainability of job-market gains, providing some fodder for those still looking for QE. But then came the FOMC minutes Tuesday showing policy-makers less keen on more easing measures.

Most markets are suffering from a hangover from the Fed. All of the base and precious metals are lower, as are many other commodities such as crude oil, as well as the stock market. The U.S. dollar has benefited, however. There is a definite risk-off day, and it’s not just gold.

An improving economic outlook is supportive for the US dollar, which in turn is weighing on gold due to the inverse relationship between the two assets. Additional monetary accommodation would be unequivocally bullish for gold because cheap money tends to debase the dollar and create future inflationary risk.

Moreover Indian physical demand has been light here. Most Indian jewelry shops were in the third week of a “strike” to protest higher import duties, and this loss of demand has been cited as a factor weighing down gold lately. 

The Indian strike situation will prove detrimental to the local physical market the longer it drags on, as a combination of reduced sales and falling gold prices will make it all the more harder for demand to pick up from where it left it