Gold Prices Hinge on Policy Decisions by Second Largest Consumer India

Gold prices are expected to trade sideways next week as the precious metal could contend with opposing forces.

As many as eight of 18 analysts polled in a Kitco Gold Survey said they expected gold prices to trade lower next week, while seven predicted that prices will rise and three forecast prices to trade sideways.

The Indian government will table the annual budget on 10 July and any indication about when New Delhi could lower the nation's tough bullion import restrictions could prop up prices.

India is the world's second largest gold consumer after China.

However, strong US jobs data which underscored a US economic recovery could dent the precious metal's safe-haven status.

Standard Chartered said in a note to clients: "Geopolitical and policy risk in key commodity-producing regions is likely to remain high...We also think the speed and nature of policy change in India will remain a key concern for gold in particular."

Sterling Smith, futures specialist, commodity research at Citibank Institutional Client Group said: "The [US] nonfarm payrolls coming in so strong for June is bearish for the gold market as this [is] another indication that some sort of tightening of the Fed's stance is on the way, which is inherently bearish for gold. The market has shown marked signs of distribution through the month of June and a break below the $1,300 level portends a test of the lows around $1,250.""

Bob Tebbutt, independent commodities consultant, said: "I believe that the gold market is on the verge of a major move. Technically support is at $1,200, with resistance at around $1,375. I believe that the market will head higher over the next year. Short term $1,375 will be broken ... next week."

Gold Ends Higher

US gold futures for delivery in August finished 50 cents higher at $1,321 an ounce on 4 July.

Spot gold traded 21 cents lower to $1,319.49 an ounce at 1750 GMT on 4 July, after dropping 1.2% to $1,309.64 on 3 July, after the release of the US labour market report.

Indian Restrictions

India's central bank on 21 May further eased gold import restrictions, while also permitting local banks to provide gold loans to jewellers.

The Reserve Bank of India (RBI) permitted leading trading houses to import gold, a decision that afforded permission to over 20 entities, including banks, to import the precious metal.

Meanwhile, the resumption of gold loans to the sector, banned in 2013, made it easier for jewellers to finance purchases.

Earlier, in March, the RBI allowed five private sector banks to import gold, a move that marked the first step towards easing India's gold import curbs.

The Reserve Bank allowed HDFC Bank, Axis Bank, Kotak Mahindra Bank, IndusInd Bank and Yes Bank to import the precious metal, Reuters reported

Modi May Abolish Curbs

India's new government is expected to relax the nation's tough bullion import restrictions after its predecessor raised duty on gold and tightened the movement of the metal.

Narendra Modi has said any action on gold must consider the interests of the public and traders, not just economics and policy.

Imports Halve

Gold and silver imports to India plunged 40% to $33.46bn (£19.84bn, €24.46bn) in the financial year 2013-14 in the wake of hard-hitting government restrictions.

Three upward revisions to the import duties on gold in 2013, to a record 10%, and restrictions tying purchases to exports, discouraged gold buying in Asia's third largest economy last year.

While official imports in 2013 reached 750 tonnes, an additional 200 tonnes was believed to have been smuggled to India, according to estimates from the WGC.