But on Thursday, a news release on Bloomsberg that Brazil had sold 256 tonnes in December, shook the market. Reuters counteracted the news by clarifying that Brazil had not sold any spot during December, and speculated that the drop of 26 per cent in the reserve levels from 4.33 million ounces to 3.17 million ounces, represented deliveries into previous forward sales and swaps. Of course, the markets were left with their judgement and news story to believe as the Brazilian bank neither confirmed nor denied anything.

Although, the news was neutralised, the markets were reminded that there were exceptions to the Washington Agreement signatories, and the volumes of official gold that can be sold without any binding. And who could explain the timing of this confusion better than Murphy's Law (I mean just before the Tuesday's auction - the timing couldn't have been more perfect). But that besides, gold saw a lot of action as the US asset markets rallied, and fund selling and stop loss triggers took it down to $286.

There was respite at those levels as demand re-emerged in the form of producers buy-back and physical demand. But, Friday saw the yellow metal close lower in the range of $282 - $283. Looking at the various factors that are affecting the price of the yellow metal in the recent past, I could analyse that gold markets have been borrowing news from outside it's own markets to determine it's price. In the absence, of any outside factors, it remains range-bound. Let me substantiate what I mean to say.

Gold, apart from being, it's traditional store of value and inflation hedger, also plays the role of an important international asset, which the fund managers use to optimise their returns. Hence, it is continuously competing various other international assets, in terms of the risk - reward analysis. There are various factors, outside the gold markets (that of the competing markets) and that of the gold markets (news of Central Bank gold sales, producer hedging, demand, etc, which are specific to gold markets only), which drive the price of gold. Of late, the price of gold has been borrowing it's pricing factors more from outside it's markets.

This week's gold price reacted more to the news of Dow Jones and tech-oriented Nasdaq rallying. Gold also reacted more to the US macro economic data (This week the key core - Producer Price Index (PPI) - excluding energy and food costs, was revealed. The data not only signaled lower inflation (which is traditionally bearish for gold), but also rallied the US assets (stocks and bonds). Since, gold continuously competes with these assets, any rise in these assets would be bearish for gold. This compounded with the consoling words coming from the Opec that they would actively look at increasing their output at their March 27 meeting, and late Friday evening Opec data which showed higher Opec output in February.

Oil futures reacted downwards (this is also major news for lower inflation, and hence bearish gold). But there are a lot of developments happening within the gold markets itself, like the Brazilian gold data and the Swiss Bank rumours. Gold reacted at the first instance, only to fall back to it's trading range quickly. These news are not affecting the price of gold, as much as Dow, Nasdaq, oil futures, US PPI, ECB rate hike, etc. is. This is what I mean, when I say that gold is borrowing it's news form the outside markets. The Bank of England's fifth gold auction of 25 tonnes is slated for Tuesday. It is expected to be a boring auction, with the cut-off expected to be about $284 - $285.

But it won't be surprising to see a strong auction - the volume being sold is not a very significant quantity, and given the buy back pressures it would not take too many producers to give the auction a "healthy glow". Also, there is good physical demand sited at the prevailing gold prices, and the gold should rally after the auction. But, there might be a good amount of resistance at $292 levels, as upcoming Taiwanese elections and rebounding of the US asset markets, along with investment funds selling at higher levels (latest COTR report on the non-commercial positions show that net speculative longs to shorts ratio has fallen from 8.9 to 4.95), act as a cap to the prices. It will have to significantly breach this level.

In the Indian markets, a Reuters report said that the gold imports into the country was 10.54 tonnes in February, through Ahmedabad, which accounts for nearly 30 per cent to 40 per cent of the total gold imports into the country. This represents a fall of nearly 27 per cent year-on-year. So much for the Indian demand.

At least, the government should be happy that there would be so much less pressure on it's trade account deficit. Of course, these figures do not, in total, indicate any demand within India, as the supply of gold from sources like gold smuggling and recycling of existing gold, is not accurately known.

The author is a fund manager with a leading financial institution and the opinions expressed are his own. This is not intended as an offer or solicitation to buy or sell, or methods to trade.