Gold Says Greece So Yesterday and India So Like Whatever

You'll have to excuse the valley girl title, but unfortunately (and fortunately for gold investors) it really does summarize a lot of truth about the behavior of gold in relation to foreign events. (RealMoneyReport.com - sponsored by Leland National Gold Exchange).

Looks like Greece got the money it was asking for and has moved onto its next test - can it utilize this gift properly? The answer won't come any time soon and so we'll just have to wait and see later this year in the summer, when some of the spotlight will be flooding over both Italy and Portugal as well.

After hiking import tariffs on gold and silver by a substantial amount recently (according to sources at UBS AG), India, the world’s biggest buyer, is now considering increasing gold import taxes again due to budget deficits. The country is definitely doing its best to retain some dignity, having recently released some 'damage-control' propaganda asserting that much of its imported bullion ends up being exported in one finished form or another.

As a country that is estimated to import $58 billion in gold this year alone, it should come as no surprise that the Prime Minister's Economic Advisory Council recently blamed the sharp increase in gold prices for the country's current account deficit. Rumor has it that additional tariffs and other sanctions in the future will raise the price of gold by six to eight percent for the average Indian buyer. However, gold is only second place when it comes to factors contributing to the Indian deficit - oil is actually the major culprit of the two.

What many investors are really concerned about, however, is whether all of this Indian deficit talk will actually hurt gold prices and if so how much? This is a very valid question especially considering how India has been the great champion that immensely contributed to rises in gold prices for the last three to five years. Many analysts are saying that India DOES and WILL affect current gold prices, but that the extent will be minimal. You see India had already raised it tariffs last year, which contributed to the country's reduced intake in the final quarter of 2011.

In other words, the damage had already been done. Sure Indian demand will pick up in the Spring and on when special Indian holidays and traditions drive demand with animalistic fervor, but the truth is that U.S. events and the dollar are what drive gold up or down the most these days. In second place there is news from China. As I mentioned last week, gold will continue to react to China's economy the same way it has to Europe.

Speaking of China: with only a year left in office, Premier Wen Jiabao delivered a pretty lengthy press conference to reporters last week. He stated that his country needed to adopt the idea of political reform and succeed at it, or else China may possibly lose "what [it has] achieved." Of course these comments were aimed more at the Communist Party factions that didn't share his views on reform and openness in Chinese society. Mr. Wen actually wants to loosen government control on soaring property prices and increase trade and investment ties with the U.S. I have to agree with his viewpoints. I once heard that the definition of insanity is doing the same thing over and over again while expecting a different result. So kudos to you Mr. Wen for wanting a positive change for your country.

Regardless of anyone's beliefs, though, China is still struggling - its car sales, cement and steel production and construction stocks were all down last week, and this week, we may seem some late reactions by the gold investing public. I for one will be looking for further opportunities to load up on gold at its current prices as I still think that investors can take advantage of the recent price drop and lock in even more great prices, but as for specific timing, I look forward to dollar and Chinese related news...

Be safe, be wealthy and above all else, be happy.

- Mitch

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