The events in India have taken a most interesting turn for gold. The one year-old political party that is anti-corruption is shaking the political foundations there. The ruling National Congress Party is having to change its stance in a hurry and is already losing influence in the capital, Delhi. With elections in May, one of the changes we expect to see will be the Finance Minister relaxing (what effectively is) the blockade on the importing of gold, which is hammering the gold jewelry industry as well as denying Indians access to market gold.
With so many criminals holding seats in Parliament, Indians are used to the turpitude of government and are happily buying what gold they can from smugglers at a $50 discount to other 'legal' market prices. The political unpopularity of the government has to be softened if the Congress Party is to regain lost ground. Re-opening the doors to gold is an important way to do this.
Gold is held in India, not for profit, but for financial security, religious and family reasons. Regulations that have closed the doors to gold are halting what used to be 1,000 tonnes per annum of gold coming into the country. If the Congress Party fails to do this, then they will most likely lose considerable political ground in the elections.
Looking at the global market, we see that the blocking of gold imports has taken an annual demand -- take this from last August, when the regulations were instituted -- of around 25% of global demand to around 2.5% of that demand. It's no wonder that the gold price has been open to bear raids and heavy selling out of the U.S. ...