Gold blasts 2% higher above $1,260 as India debates lifting bullion restrictions - Wealth Managers

Stocks tank on poor Chinese PMI data and corporate earnings reports

In its biggest one-day rally in three months, gold galloped through the $1,260 level -- and more -- in a 2% surge Thursday, fueled by growing speculation that India could ease its draconian import duties on the yellow metal. That's huge news because those restrictions are largely to blame for gold's steep losses in 2013.

Gold also shrugged off poor PMI manufacturing data in China that suggest its economy is slowing down. Normally, that kind of a report mind hurt gold because it implies fewer people might be buying gold. What that report did instead was help hurt U.S. stocks, which fell across the board, led by the Dow Jones' 200-point loss. Likewise, a similarly strong manufacturing report in the eurozone slammed the U.S. dollar.

"Market participants were ready to sell their equities holdings and to add to their gold positions on the weaker-than-expected Chinese data," said Carlos Sanchez at CPM Group.
U.S. still feels like recession, poll finds
And despite December homes sales hitting seven-year highs, 74% of Americans believe that the nation is still in a recession. In a new Fox News poll, when asked "For you and your family, does it feel like the recession is over, or does it feel like the country is still in a recession?" only 22% said they believed the downturn had ended. The 74% is better than the 86% from the poll in September 2010, but only barely, if the "improvements" in gross domestic product and unemployment rates are taken into account.

Meanwhlle, with gold breaking through key resistance at $1,260, Bank of America's head technician MacNeil Curryissued this note:
"Gold gets explosive above 1270. Watch out. With the US $ coming under pressure, the potential further gold gains is high and rising. 1270 IS KEY. A break of the 1270 pivot should be the catalyst for short squeeze higher, exposing the confluence of resistance between 1362/1399." 
Indian reforms could fuel "explosion of pent-up demand"
But the biggest news for the gold market Thursday came from India, where Congress party chief Sonia Gandhi reportedly asked the government to review tough import restrictions on gold, which include a record 10% import duty.

"Her intervention is likely to create pressure for an easing of rules that have hammered the bullion industry and brought a surge in smuggling," Reuters reported.

However, Finance Minister P. Chidambaram, in an interview with CNBC on Thursday in Davos, Switzerland, ruled out any change in restrictions until the current-account deficit was under control: "Until we have a firm grip on the current-account deficit, I do not contemplate any roll back in any measure. We will have a full idea of the current-account deficit only when the budget is presented and when the year comes to an end."

Nevertheless, the idea that India's gold restrictions are not set in stone is gathering momentum. Gold is simply too ingrained in India's culture, and smuggling is on the rise.

"This is an indication that the government will ease the gold import rule soon," Chintan Karnani of Insignia Consultantssaid of the news. "India allowing gold imports will be bullish for gold and silver in the short term."
Jan Skoyles at The Real Asset Co. added: "Should restrictions be lifted, then gold demand won't just return to previous levels, but there will be an explosion of pent-up demand to begin with."

Stay tuned for developments in the matter, which has huge implications for world gold demand and the resumption of the bull market after 2013's down year.

More information can be found online at http://www.goldbullionadvisors.com