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Gold Prices Need Bang in Quiet Market

August 15, 2012 – While the price of gold hovered above $1,610 per troy ounce in trading on Tuesday morning, just under levels that started the week, European markets inched higher after news emerged of better-than-expected growth in the German economy.

Silver prices gained above $28 per troy ounce before easing with other commodities exhibiting a similar flat gain for the day.

Though the daily range has been fairly wide at times in the past weeks, it has served to thin liquidity and the gold market remains quiet according to a note from Swiss bullion refiner MKS.

On Monday, gold prices dropped 1 percent as the euro lost ground toward the end of session trading, partially attributed to news of a second legal challenge to the creation of the Eurozone’s 500 billion euro permanent bailout fund known as the European Stability Mechanism.

Currently a matter being handled by the German Constitutional Court, the Court issued a statement Tuesday stating it does not plan to delay its ruling due on September 12.

The German economy has grown by 0.3 percent in the second quarter of the year, a slower rate of growth than the first quarter but a show of strength that beat out expectations of economists according to an initial estimate of gross domestic product, which was published on Tuesday.

At the same time, the GDP of the Eurozone as a whole entity has contracted by 0.2 percent in the second quarter of the year according to Eurostat.

In India, traditionally the largest gold bullion market on the planet, imports of gold bullion in 2012 could register a decline of 30 percent on the year, according to Bombay Bullion Association president Prithviraj Kothari.

The physical demand in India is very much lackluster despite the opening of the festival season just days away, traditionally the time when the Indian gold market shines as wealth is transferred in the form of gold during weddings and other events.

Jewelers have also opted to keep lower inventory at this time, according to dealers in Mumbai. This is partially attributable to the record drought currently affecting the Indian subcontinent, which is projected to impact the income of farmers, who make up 50 percent of the gold market in India. Farmers are opting to keep cash on hand to deal with the fallout of the drought instead of using excess cash to purchase gold, which is having a drastic effect on the market at the current time.

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