Gold has commenced the New Year as it did in 2008—up sharply in early trading before selling off somewhat. Gold surged (along with oil) on the open in Asia on geopolitical concerns with the Israeli military offensive against Gaza escalating. However, with oil giving up some of its earlier gains and the dollar stronger against most currencies so far this morning, gold has given up its earlier gains.
In recent years, geopolitical risk has been greatly underestimated by the financial markets and it continues to be today. Also, unprecedented macroeconomic risk remains and allied to that is increasing monetary risk as the Federal Reserve and central banks internationally embark on zero interest rate polices (ZIRP) and an unparalleled monetary easing that could see a swift shift from deflation to a very sharp inflation or stagflation in the coming years and possibly as soon as 2009.
Gold demand in India has fallen quite sharply in recent months as the price sensitive Indians have stepped back from the market. This is no cause for alarm as the Indian market has done this throughout the bull market since 2001. They are smart buyers and continue to buy on pull backs and corrections in the price. Also demand from Russia, Brazil, the Middle East and many other emerging markets—most importantly—China is increasing every year. This is an important big picture trend that will become an increasingly important fundamental driving the gold market in the coming months.