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Gold has traded between $1,690 and $1,696 so far today…as of 7:40 am Pacific, bullion is down $7 an ounce at $1,685…Silver is off a nickel at $32.17…Crude Oil has retreated 15 cents to $96.53…Copper is unchanged at $3.68 while the U.S. Dollar Index has reversed and is now up one-fifth of a point at 80.04…

India’s Gold Strategy

The Gold market has so far shown little reaction to Monday’s news that India will raise its import tax on the yellow metal to 6% from 4%…India is the world’s largest Gold importer and that has contributed in recent years to a growing and record current account deficit (the broadest measure of trade, tracking goods, services and investment income) that the country is trying to bring down…about 80% of India’s current account deficit is due to Gold imports, according to the Reserve Bank of India…Standard Chartered Plc said earlier this month that its Gold shipments to India soared on mounting concern the duty would be raised…“It was strong in November and that’s normally a usual seasonal pattern that we see coming through from Indian post-monsoon, wedding season buying,” Marc Ground, a commodity strategist at Standard Bank in Johannesburg, told Bloomberg…“The fact that January is as high as we see in November usually, that’s unusual…there was probably some Indian buying ahead of this tariff increase”…

The higher taxes aren’t expected to have a huge impact on Indian Gold demand, some of which undoubtedly will also shift to unofficial channels…”In volume terms, we expect India’s Gold imports to fall to 855 mt (metric tonnes) in FY13 from 891 mt in FY12; and to $48 billion (USD) from $56 billion in value terms,” said Sonal Varma, economist at Nomura Financial Advisory and Securities in an article from Bloomberg…”The additional imposition of import duty could lead to Gold imports moderating to 750-800mt in FY14…However, we do not expect Gold imports to fall much more than that as consumption demand for Gold (around 65% of Gold demand) and investment demand (35%) have already moderated close to their averages…Given India’s penchant for Gold for weddings and other religious ceremonies, a sharp fall in volumes is unlikely, in our view…With Gold prices hovering around $1,680, we expect Gold imports value to ease to $44 billion in FY14 from $48.3 billion in FY13, or a drop of 0.2 percentage points,” Varma added…

In conjunction with the increases import taxes, India’s finance ministry has directed Gold exchange-traded funds to park a portion of their Gold holdings with banks so that some demand is met from domestic sources…it also eased the terms of Gold deposit schemes of banks to encourage individuals to deposit their idle Gold, which will help increase domestic supply…interestingly, there has been a tremendous jump in lending against Gold in India (about 700% according to some reports since 2008)…as a result, while the Indian government may want to reduce the amount of Gold its citizens import, they have no interest in seeing the Gold price drop – a crash in Gold prices could wreak havoc on the Indian financial system given the extent to which Gold is now used as collateral…

Updated Gold Chart

The big test for Gold in the immediate term is whether it can push through strong resistance around $1,700 as shown in John’s 6-month daily chart below…Gold has been trading in a downsloping channel since the fourth quarter of last year, and it needs to break out of that channel in order for momentum in this market to pick up…RSI(14) is trending higher which is positive, buying pressure is increasing and the ADX trend indicator is starting to look bullish despite this morning’s minor weakness…

Today’s Markets

Asian markets were mostly lower overnight with Japan’s Nikkei average correcting 2% to close at 10487…the Bank of Japan’s latest aggressive easing fell short of some expectations for immediate action, sending the yen higher and the Nikkei down 223 points…China’s Shanghai Composite gained 6 points to 2321…European shares are mixed today while strong earnings from Google and IBM have given Wall Street a positive tone today…as of 7:40 am Pacific, the Dow is up 48 points to 13760…the Venture has gained 2 points to 1243 as it continues to attempt to break out from the 1240 resistance area…a strong close with an increase in volume today would be a bullish sign…

Sunward Resources (SWD, TSX-V)

A company we checked out during the Vancouver Resource Show that is worth our readers’ due diligence is Sunward Resources (SWD, TSX-V) which is sitting on over $30 million in cash as it continues to develop its multi-million ounce Titiribi Project in Colombia’s prolific mid-Cauca Gold belt…like many others, this stock had a very rough 2012 but appears to be bottoming out around the 80 cent area…its all-time high is $2.41 (early last year)…a rebound in SWD as the overall market strengthens seems very probable…

Madalena Ventures (MVN, TSX-V)

Occasionally, we present some potential oil and gas opportunities and Madalena Ventures (MVN, TSX-V) is also worth our readers’ due diligence given its interesting chart and recent acquisition of Online Energy Inc. and its Alberta assets that will help drive cash flow for Madalena…below is a 2.5-year weekly chart from John…the right handle of a basing “cup with handle” formation is nearly complete with critical support at 28 cents…MVN is off half a penny at 34 cents in early trading today…

Note: John, Jon and Terry do not hold share positions in SWD or MVN.