The Hindu Business Line : Gold price likely to pause

Chennai, Feb. 24 After a 4.6 per cent gain last week, gold is likely to pause this week due to a couple of factors. During the weekend, the precious metal witnessed sell-off on profit booking, while there is a section of analysts that feels those who wanted to go long are already long on it.

A key indicator is the holding of exchange-trade funds, which has remained unchanged in the last one week.

Analysts see some exhaustion setting in the gold counter, which has had a good run since the beginning of this year. The price of gold has increased by 13 per cent since January 1. Also, demand for jewellery is seen tapering off at such high levels for the yellow metal. Low demand for gold in the fourth quarter last year and a 73 per cent decline in its import by India besides reports of its recycling for making new jewellery are adding pressure on the yellow metal.

Supports & resistance

Still, $940 an ounce is seen as a key support for gold and if it falls below that then the next support points could be $935 and $923. On the other hand, gold is witnessing resistance at $952. Passing this, it could face hurdles at $960 and $972. There have been a few who have fixed $976 as the target for gold, while there is some unanimity over gold facing resistance at $1,000. There will be one major event to look out for this week as far as the precious metal is concerned. That is the Budget presentation for 2008-09 on Friday. There will be many pointers to the Indian economy and various other things but of utmost importance is to see if the Finance Minister, Mr P. Chidambaram, gathers courage to raise the import duty on gold.

The Aam aadmi or the common man attaches great significance to gold and it is unlikely that the Finance Minister would want to add further fuel to the already burning fire of higher gold price. And not the least is the fact that food prices are the primary cause for inflation.

Whatever happens, the pause this week for gold can only be temporary or a short phenomenon. Mr Ross Norman of TheBullionDesk.com says gold will surely top $1,250 an ounce before the year ends but the GFMS says it could just about touch $1,000.

The issues of importance here is the way the global economy, particularly in the US, is shaping up. Standard & Poor has downgraded or is reviewing sub-prime mortgages to the tune of $534 billion. Analysts feel there could be more write-offs, triggering panic in the stock and bonds market.

This could mean that gold will retain its value; and investors and funds will opt for the yellow metal for its safe haven status. The dollar’s fall is another reason that can see others opt for the precious metal.

Amidst volatility

Gold will surely see its price rise but that will happen amidst volatility, which investors must be ready to reckon with. Silver, which ended at $18.018 an ounce this week, is likely to tow gold’s line.

Base metals are seen overbought and therefore, correction is likely to set in that complex. Coal could also see some correction setting in.

More Stories on : Gold & Silver | Outlook

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page