Gold shot up above $1680 per ounce today, hitting around two week highs, extending its recent break higher as reports indicating that India is about to hike import duties on the yellow metal. The commodity has been rising in last few days and went up initially as a reprieve on the US fiscal cliff boosted the sentiments for risky assets. The commodity quotes at $1682.40, up $6.6 per ounce on the day after testing a high of $1685.30 per ounce. 

Gold imports constituted a substantial chunk of the imports and is a huge drain on the Current Account of India. Suppose gold imports had been one half of the actual level that would have meant that our foreign exchange reserves would have increased by US$ 10.5 billion noted the Union Finance Minister PChidambaram.

He has appealed to the people to moderate the demand for gold, which leads to large imports of gold. He also made it certain that government would take further steps like hike in import duty by saying that he is left with no choice but to make gold imports a little more expensive.Notwithstanding the widening of the CAD, the positive aspect is that the CAD was financed without drawing on reserves. This was mainly due to adequate inflow of FDI (US$ 12.8 billion) and FII (US$ 6.2 billion). In addition, external commercial borrowing amounted to US$ 1.7 billion. 

The Eurozone manufacturing activity contracted for a 17th month running in December, according to a key survey of business managers. The Purchasing Managers Index (PMI) for the manufacturing sector, a leading indicator compiled by the Markit research firm, came in at 46.1 points in November, down from an earlier estimate of 46.3 points and down from November's 46.2 points. Any score below 50 points indicates contraction, not growth. The major economies like Germany (46.0 points), France (44.6) and Italy (46.7) signaled contraction.

MCX Gold futures jumped above the critical Rs 31k mark. The benchmark February futures jumped by nearly Rs 300 on the day to test highs of Rs 31191 per 10 grams in the aftermath of the reports stating an almost certain hike in Indian Gold import duty. The metal currently trades at Rs 31008, up Rs 121 or 0.40% on the day with 1.16% drop in the open interest.

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