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India Gets Back Into Gold


What signs of a pickup in physical demand might mean.

More news for fans of the yellow metal to mull over this week: indications of recovering physical demand in India, which until recently served as the world's biggest bullion consumer.

So says Reuters, which reports that the Bombay Bullion Association (BBA) -- an association of retailers and wholesalers -- raised its estimate of total 2009 Indian gold imports to 300 tonnes to 350 tonnes, up from a prior forecast of 200 tonnes.

The trade body also revised its estimate of imports in 2008 to 439 tonnes from 420 tonnes.

December saw particularly strong demand from India. The country imported 33.5 tonnes of gold that month versus just 3 tonnes a year ago, says Dennis Gartman of The Gartman Letter.

The veteran trader, in his morning missive, wondered: if gold can surge as hard as it did last year with total Indian gold imports having fallen by half, what happens if Indian gold imports just hold steady in 2010 compared to 2008?

"What if Indian buyers become comfortable with this new high price of gold, accept it, and then begin buying anew as they have historically?" Gartman asked.

A lot of folks might still think India is in fact the world's top gold consumer. But that's actually no longer true, notes Frank Holmes, who is the chief investment officer of US Global Investors. Today, that title goes to China.

Holmes, citing numbers from metals consultancy GFMS, points out that China consumed an estimated 432 metric tons of gold in 2009 from jewelry and investment demand -- 10 metric tons more than India. (Central bank purchases aren't included in these demand figures).

Record gold prices had discouraged jewelry shoppers in price-sensitive India from splurging on the yellow metal. Suddenly, shelling out hard-earned money on shiny earrings and necklaces didn't sound so fun.

According to the World Gold Council, jewelry demand in the third quarter was 111.6 tonnes, down 42% on year-earlier levels.

But, since hitting a peak intraday of $1,226.56 per ounce on December 3, gold has declined by almost 9% to $1,118.88. And this corrective phase has perked up buyers again.

"I was in India in December," Holmes tells us. "It's packed and everybody is doing business. It's action galore. So we see more confidence. Also, remember that the Indian government made a real statement by buying gold."

(In November, India's central bank purchased 200 metric tons worth nearly $7 billion from the International Monetary Fund).

A fan of gold, Holmes argues that the metal's long-term uptrend is well intact. As for miners, where does he see wise places to commit capital? Holmes says to stay focused on reserves per share and production per share.

"Most of these executives are more busy mining the market than mining gold," he says.

But, right now, he says that he favors Randgold (GOLD) as a smart pick.

This is an interesting time to talk about gold. Strategists and market pros argue that the countertrend rally in the dollar, creating a reversal in gold, presents an attractive buying opportunity for investors to noodle on.

Curt Hesler, longtime editor of the Professional Timing Service newsletter, thinks there's another pop coming in the buck and a commensurate final drop in gold and gold stocks.

"We hit that $1200 level and now we throttled back," he says. "If people are interested in investing, well, it's a lot better to invest when it's falling than when it's running away."

Hesler tells clients to buy Goldcorp (GG) at $34.50 and Yamana (AUY) at $10.50 or better.
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