The Hindu Business Line : Speculation driving gold higher

GOLD has recovered impressively since last weekend with prices rising above $420 an ounce, eventually ruling at $424.30-425.30 on Monday morning, with short covering encouraged by its resilience to hold support above $415/oz.

The strong interest in buying euro-denominated gold saw prices break above Euro 340/oz. Some believe that the yellow metal is now set towards its other recent peak level of Euro 345 and then Euro 350.

There, of course, are other views too. There is little fundamental reason to be positive on gold and recent price strength looks more likely to be a burst of currency-related short-covering than anything else, commented Mr Kamal Naqvi, precious metals analyst with Barclays Research.

There is possibly a little more upside to short-term gold price direction, guided by a stronger dollar than previously expected. Yet, the price expectation of $425 for the second quarter and $415 for the third quarter is unlikely to change significantly, the analyst remarked.

The forex market strategists at Barclays have reportedly revised their dollar forecast, looking for a stronger dollar than previously, though only in the short-term. They now target Euro/$ at 1.22 in one month and at 1.25 in three months(1.27 and 1.26 previously).

Falling prices have encouraged support for gold as buying interest has resurged. However, this can only partly explain the resilience shown by gold to the strength of the dollar.

An indication that support for gold is more speculative than physical is the more recent positive trend being seen in gold equities.

There has been a notable pick up in trading volumes of the "streetTRACKS" Gold ETF to nearly 3.2 million shares traded last Thursday, with the gold under trust rising by 1.55 tonnes to 179.15 tonnes.

Gold in other currencies, particularly euro, is receiving considerable market attention.

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