The Hindu Business Line : Gold likely to trade in ranges after crash

Chennai, March 23 Gold prices last week hit a record $1,030.90 an ounce, but fell sharply and closed at $917, far lower than the previous week’s close. In fact, the yellow metal’s fall from the peak has been so sharp that it has shed 11.5 per cent.

What the market is currently witnessing is profit-booking and analysts have no two views on gold being an asset class.

The crash in the equities market, lead by the Bear Stearns saga, was the primary reason for the profit booking — more than the Fed’s 75 basis point rate cut — and the precious metal’s fall. The fact is that funds are ensuring that they are left with profits in at least the commodities counter, after being wrapped hard on the knuckles in the equities market. After falling to $903, gold has recovered to end the week at $917.

According to Mr Anul Goel of Kotak Commodity Services Ltd, gold witnessed a severe rejection on the day it peaked by forming a gravestone doji and latter a shooting star candle-stick pattern on the charts. In a nutshell, it means that the current trend can come to a pause but not necessarily turn down as it could have also been sideways. On the next day, a one month up trendline (red) was broken on a closing basis with decent volumes. According to Mr Anul, the Fed rate cut shows more concern towards containing inflation, thereby putting a downward pressure on the gold prices that is mainly used as an inflation hedge. On the same day a much longer trend line was also broken with huge volumes and there was a sharp fall in open interest exhibiting longs being liquidated.

Sharp volatility

Analysts are of the view that the gold market is in for a sharp volatility. This is likely to shakeout minor players, after which it could reach for more new peaks. No one has given up on the $1,100 an ounce target for gold. Not surprisingly, last week’s fall has brought in some physical demand, which is a proof of further upside for the yellow metal.

Technically, gold derives support at $910-900 and further at $886-885. These levels should provide a not-to-be missed buying opportunity, as gold still remains in an uptrend. Silver, too, has slid from its peak of $21.07 to close at $16.85. Support for the white metal is seen at $16.5-17 an ounce. The decline below a crucial support level of $17 can be considered as favourable for buying. This counter, too, could witness volatility. Post-Easter buying of funds and signals from the equity markets are crucial to both the precious metals’ behaviour this week. However, all precious metals are likely to trade in ranges this week, trying to find their levels. Coal prices are expected to decline a little more, while metals, still in the grip of fears of US recession, are likely to be range-bound.

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