The Hindu Business Line : Gold: Bulls have edge in the short term

Trends
Oil price surge sparks investor interest in gold, as inflation fears loom
Silver seen toeing the gold line
Other metals are likely to be range-bound

M.R. Subramani

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Perth, May 18 Gold made rapid gains towards the end of last week on the back of two crucial developments. One, crude oil continued to rage and hit a record $128 a barrel.

Then, the US consumer confidence index showed a fall, the lowest in the last two years. Alongside, the dollar also weakened, thus bringing about a collective effect to lift gold.

Gold, after crossing $900 early on Friday, closed just shy of the mark at $900 an ounce.

There are a few pointers to why gold gained last week despite the World Gold Council stating that demand for the yellow metal could decline 11 per cent this year. This on the heels of a fall in Indian offtake. Indian demand failed to sparkle even during the auspicious Akshaya Tritiya.

Even as India heads into a wedding season, there are still no signs of big consumption.

There are two reasons for this. One, the Indian consumer has turned sensible to the high gold prices. Two, it also gives credence to the talk that old gold is being recycled. Not surprisingly then, a few years ago, the BJP, in particular, had remarked that Indians had so much gold that the country’s debt to the World Bank could be paid off at one go with the family gold holdings!

Analysts are of the view that the yellow metal is not following the demand-supply situation. The oil price surge has given rise to fears of inflation. That is attracting investors’ interest in the precious metal. Therefore, currently the bulls hold an upper hand and have an edge.

Trend to come

Reports also talk of global investors now hedging more in the yellow metal in view of the surge in crude prices.

Yet, there is another section which feels that gold’s rise last week could be seen as fluctuation in a declining market. If gold happens to fall below $846, then the metal could witness further fall.

They point to the fact that gold had risen to $914 on Friday before settling at $899.

That leaves gold with an immediate target to hit $900 an ounce. Then, it could come up with further stiff resistance at $923. A few analysts are pegging the resistance at $919.

Support for the yellow metal is seen at $867. If it falls below that, there could be another support at $852 and below that at $831.

Silver is seen toeing gold’s fortune and it wouldn’t be witnessing any break away from the trend gold is witnessing.

Other metals are likely to be range-bound, caught between rising crude prices, fundamentals and threat of cut-down in expenditures as inflation threat looms.

The non-commercial long holdings by speculators continue to remain where they were last week; hedgers’ position in commercial open interest also remains unchanged.

Crude, on the other hand, is likely to top $130 an ounce. After that it could see a bit of cooling before stabilising.

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