Gold price plunge: Indian gold buyers on the sidelines, waiting for better prices

Posted August 10, 2008

Plunging gold prices have the famed “Indian gld buyers” waiting on the sidelines, waiting for further drops.

by J. Christoph Amberger

Baltimore — (TFN):The currency exchange rate of the euro agains the dollar plunged below $1.50 in Asian trading this morning. Experts are now predicting a rate of $1.46 this week. If this comes to pass, gold stands to extend its precipitous fall from its March record of $1,033.90.

In fact, for gold to maintain its attraction as a supposed safe haven against inflation, inflation would have to quadruple, to over 17%, for gold investors to come out ahead — and make up for the loss of valuation in five months.

Of course, gold agnostics suggest this at their own peril. Last week, I pointed out that oil’s downside by now has been pegged at $110 and even $70 per barrel, that’s 26% or even 50% below its record high. For gold, a synchronous decline would result in prices around $750 or even $500 per ounce.

Readers pointed out that “as for gold at $750 and $500, those aren’t support points on any chart I’ve seen. The gold support points I have are $850 (very strong), $800 (weak) and $650 (Herculean strong).”

I’m sure the chartists have it right. (Although my old friend and colleague Adam Lass, of WaveStrength fame, appears to have been unprepared for recent moves in oil and equity markets, as his forecast in a strange, strange, but eco-friendly slide-show interview reveals).

When it comes to gold, it seems that the “Indian buyers” — credited with saving many a bad day on the gold markets — may once again weigh in. Not necessarily as sellers. But not as buyers, either:

“If you are planning to buy gold, you may want to wait for sometime. For, gold prices are expected to fall to Rs 11,000 per 10 gm in the coming weeks,” wrote Himansh Dhomse in an article called “Gold prices plunge, but don’t start buying yet” on Saturday.

“On Friday, gold fell by over 15% to around Rs 11,850 per 10 gm, and silver fell by over 14% to around Rs 23,000 per kg. Analysts and experts believe that gold prices will plunge further as crude oil has come off the boil. (…) The price of oil is expected to come down from around $116 barrel to $105 per barrel. In the domestic market, the yellow metal might fall to Rs 11,000 per 10 gm.”

While dyed-in-the-wool gold bugs are not known for liquidating losing positions — my father is still waiting to break even on krügerrands he bought in 1980 –, traders tend to act more tactically. It may be the sidelining of buyer waiting for better prices that may determine the week’s development.

****Make sure you sign up for our FREE TFN News Feed for breaking news, special reports and new financial videos. Sign up through your favorite reader here. Or, if you prefer, have the feed delivered to your email.