‘Anemic Interest’ in Buying Bullion at Rupee Record

Dollar prices for buying gold rallied above $1,670 per ounce for the first time in over two weeks ahead of US trading, while stocks and commodities were broadly flat, with the main European markets except London closed for the May 1 holiday.

Prices for buying silver meantime broke through $31.20 an ounce, though they remained below last week's close by Tuesday lunchtime in London.

The previous day, gold was broadly steady for most of Monday's trading, with the exception of a sharp $15-an-ounce drop reportedly triggered by 7,500 gold futures – equivalent to around $1.2 billion – being sold in just one minute, leading to a 10 second suspension in trading.

"The reason for the selloff remains uncertain," says Standard Bank commodities strategist Leon Westgate.

"However, given the volumes traded, it is unlikely to be a fat finger."

Over in India, where Rupee gold prices hit an all-time high today, interest in buying gold "has become anemic after the recent gold buying festival ended," according to a note from Barclays this morning.

Indian exports meantime fell in March for the first time in three years, dropping 5.7% by value from a year earlier, official data published Tuesday show.

Ratings agency Standard & Poor's last week cut the outlook on India's credit rating from 'stable' (BBB+) to 'negative (BBB-), adding that India's sovereign debt faces a one-in-three chance of losing its investment grade status.

The move has made it more difficult for India's central bank to halt the depreciation of the rupee, one Reserve Bank of India official told news agency Reuters on Tuesday.

"The main problem now is lack of confidence among investors and this is getting reinforced every time by either data or events like S&P cutting rating outlook," said the RBI official.

"When risk aversion is high, the success rate of intervention is low and that is why we are seeing rupee at such low levels despite intervention."

The rupee has fallen 18% against the Dollar over the past 12 months.

China's manufacturing sector growth accelerated last month, according to official purchasing managers' index data published Tuesday. The official manufacturing PMI came in at 53.3, up from 53.1 in March. A figure higher than 50 indicates expansion in manufacturing activity.

"The peak reading in a year usually occurs in April so the actual strength of China's manufacturing sector was probably not as resilient as indicated," warns Société Générale economist Yao Wei in Hong Kong.

"There's a big chance that the second quarter is going to be weaker than the first quarter," adds Joy Yang, chief economist, Greater China at Hong Kong's Mirae Asset Securities, speaking to Bloomberg Television this morning.

"We see that the external environment has sort of stabilized but we don't see drivers in growth yet. I think [policymakers] will have to start easing no later than the middle of the year."

"Beijing will continue its pro-growth policies," agrees Ting Lu, economist at Bank of America Merrill Lynch.

"But the markets should also be wary of overly optimistic [growth] forecasts."

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