India a Major Force in Gold Outlook

NEW YORK (TheStreet) -- As gold prices traded near highs this week, demand has softened. Last week gold made new highs, but only for those buying and selling in rupees. The Indian rupee value has fallen so much against the dollar that gold is now making new highs in India.

For gold bulls this spells trouble. India is the number one importer of gold and the Indian gold market is taking hits from multiple directions. How important is India? India makes up over a quarter of the world's demand for gold. What happens in India doesn't stay in India. More gold-traded financial products trade in the U.S.; however, when it comes to determining world demand, India is the leader.

The impact of the dollar's rise is evident in several metal-related stocks and ETFs. Market Vectors Gold Miners ETF GDX (GDX) closed Tuesday near the 200-week moving average of $47.62. From a technical analysis point review, the 200-week moving average is the next major resistance because it also lines up with the 60-month moving average. The Gold price tracking ETFs GLD (GLD) and IAU (IAU) have performed relatively similar.

GLD broke through the second major monthly trend line last month and is currently just below resistance. On the weekly chart GLD broke through the downward trend line and is now up against the fast nine-week moving average. Just as important is the 60-week moving average that was tested in all three of the last three weeks.

Silver, represented with the silver trust ETF SLV (SLV) is up against the same technical weakness as gold. All three major daily moving averages are trending lower and there doesn't appear to be much for a catalyst for it to lift higher.

The dollar is currently worth about 55.54 rupees, down slightly from all-time highs just above 56 from last month. Simple supply and demand 101 tells us when the cost of something rises, demand will fall. With metal costs at an all-time high, it's no surprise that gold and silver imports are down.

Gold is not the only commodity trading at higher prices. Oil prices are skyrocketing in India as well fanning the flames of inflation. India imports oil and coal to meet energy needs and while the U.S. is gaining relief from high pump prices, India's trade deficit as measured in rupees is taxing economic growth. On Wednesday, United States Oil Fund USO (USO) is up for the third day in a row (read why I expect oil to fall under $75).

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