The Hindu Business Line : Gold likely to make further gains; may rule firm

Chennai, June 8 Gold, after ruling flat during most part of last week, gained sharply on Friday and ended 1.7 per cent up at $902 an ounce. Quite a few things spurred the precious metal towards the weekend, especially crude oil, which hit a record $139 a barrel.

One thing has become clear with last week’s development. That is, $850 has turned out to be a crucial support for gold and it looks likely that it may not fall below that mark for the next few weeks. Before that, gold was also seen supported strongly at $880.

Analysts see the weekend’s trend as shape of things that could be witnessed before the year-end. That is, the yellow metal is headed for more gains before the year ends. Gold is likely to rule firm as long as crude oil rules high. That is because it is seen as a good hedge against inflation, especially if it is led by spike in oil prices.

According to Mr John Hathaway, an expert whose firm also invests in gold, the precious metal is still cheaper in relation to oil prices and other global financial assets.

Fall in discoveries

Gold has not increased the way in which other metals have increased. The other driver for gold is that there has been a fall in discoveries of million plus ounces of gold.

A key element that has emerged in gold’s progress is that large speculator holdings in non-commercial hedges now total 51 per cent, up from 45 per cent a couple of weeks ago. Again, in commercial holdings, open interests by commercial hedgers is also up marginally at 72 per cent.

Besides surging crude prices, what has given impetus to gold currently is the announcement by European Central Bank that rates could be increased by 25 basis points. This, in turn, has put pressure on the dollar.

The dollar, currently, is looking fragile and therefore, gold is likely to make further gains.

But there is a section which feels that gold has no justification to rise the way it has on Friday.

The rise is seen as one due to short-covering and there is a lurking suspicion if gold can sustain the gains. The downside risk for a fall in crude prices is another aspect that clouds gold’s fortunes.

Uncertainty cap

According to Angel Commodities, gains in bullion are capped by uncertainty over the future direction of the US currency and expectations that demand would remain muted, going into the typically slack third quarter.

The slack physical demand sees only investment demand helping bullion prices in the near term.

Angel Commodities sees resistance for gold at $908.50, while support is at $867.70.

In the domestic futures, MCX August Gold could find support at Rs 12,055 and below that at Rs 11,870 for 10 gm. Resistance will be first at Rs 12,380 and beyond that at Rs 12,520.

Silver is expected to toe gold in the near-term. For mid-term, bullion prices are expected to remain vulnerable to falling demand.

Crude oil

Crude oil prices were volatile in the last week. Going by current trends, it may test $150 a barrel by year end. According to Angel Commodities, MCX June contract could face resistance at Rs 5,805 a barrel and support at Rs 5,075.

More Stories on : Gold & Silver | Commodity Markets | Petroleum

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