Tuesday, April 28, 2009

Today in Gold: Tuesday, April 28

Each weekday, Cash4Gold will troll through the web's gold banter and post some of the bigger or more interesting stories. Following is a run-down of today's features:

"US gold ends 1.6 pct lower, tracks platinum drop"
Author: Frank Tang
Website: UK.Reuters.com

Main Points: Gold for June delivery dropped $14.60 to finish the day at $893.60 an ounce, ranging from $884.60 to $907.70 throughout the day. Although fears of a swine flu pandemic could have driven the gold price higher, those reactions seemed to be outweighed by investors wanting to make a profit on their gold. Also, a gold buying festival in India, which otherwise was thought to benefit the gold retail industry, was not as profitable as previously expected.

Analysis: This is actually quite surprising. Gold has been quite solid during the past week-plus, and the current environment would have seemed to benefit gold. Swine flu fears combined with negative bank stress test results and increasing concerns about the US auto industry should have benefited gold investors -- these are prime conditions for safe haven buying.

Maybe the price will jump back up tomorrow, but the one day drop of nearly 2% is difficult to explain. This is the first time gold has finished a day below $900 an ounce since last Wednesday, April 22, when it was on its way back up to $900.

"Festival Demand Inauspicious for Gold Sales"
Author: Swansy Afonso
Website: WSJ.com

Main Points: The expectation that the Indian gold-buying festival of Akshaya Trithya would significantly boost the gold retail business has not played out. This is largely due to the higher price of gold jewelry (and gold in general) compared to this time last year.

Retail gold jewelry prices were up about 25% compared to last year's festival, which causes problems considering the price-conscious consumers. The increase is due to a rupee which has weakened when compared to the US dollar (40 to the dollar at this year's festival compared to 50 to the dollar last year).

The result: Retail sales are expected to be down 60-70% when compared to last year, even though last year's sales were also considered weak, down 11% year over year.

Analysis: The decline makes sense. Not only does the higher gold price raise the cost of jewelry, but the poor global economic conditions allow for more cautious buying habits. You'd assume that during normal economic times, even with a higher price of gold the income from the festival, even if not the quantity, would remain steady. The fact that buyers are less inclined to spend their money on jewelry due to these tough times magnifies the struggles of the retail jewelry industry -- even during gold-buying festivals like this one with a reputation for lavish spending.

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