The Hindu Business Line : Bullish momentum may continue in gold

Chennai, July 13 Gold has its own charm. Not for nothing it is seen as a safe-haven investment. In the last couple of months, after it hit $1,000, the yellow metal has been keeping a low profile. But, three important factors have emerged giving impetus to gold’s upward movement.

One, tension in West Asia has reared its ugly head again in the garb of Iran-Israel stand-off. Iran test-fired missiles and Israel air force ‘practised’ over Iranian sky. In turn, crude zoomed to a historic $147 a barrel.

Two, the dollar fell just short of falling to its lowest against the euro. Three, bears took a firm grip of the equities market.

Support and resistance

These three developments propelled gold beyond $950-an-ounce, before the yellow metal closed the week at $960.60. Though charts show overbought conditions, there is no indicator that it could witness a decline. In fact, the charts also show that gold is looking positive, both in short-term and long-term. This means the bullish momentum is likely to continue.

However, before it really takes off towards the $1,000-an-ounce-mark, gold will have to get past the stiff resistance that it could face at $979. According to Angel Commodities, $970 could pose a serious hurdle for gold’s uptick. Support for it comes at $931. Angel sees the support at $930 and below that at $910.

Risk-free instrument

Leaving aside the technicals, fundamentally a few crucial factors are likely to support gold’s upward run. First, the gloomy trend in the equities market is set to force investors to look for a risk-free financial instrument. Second, raging crude oil prices have triggered inflation fears and in countries such as India and Pakistan, the rate is already in double figures. Third, the West Asia tension has lead to investors look for safe investment tools.

Fourth, gold production in South Africa declined 10 per cent last month, triggering supply-demand imbalance. Last but not least, demand for the yellow metal as exchange-traded fund is increasing, as there is flight by investors towards quality investments.

Other positive indicators for gold are that open interest positions increased by 80,000 last week, while those holding long positions are positive about its march ahead and outnumber those who are pessimistic of the yellow metal’s fortunes by 62 to 12. On the domestic front, according to Angel Commodities, gold for August delivery on MCX could find support at Rs 12,800 and below that at Rs 12,620 for 10 gm. Resistances are first seen at Rs 13,350 and then at Rs 13,525.

Crude oil

With Iran challenging the US to attack it, tension in the West Asian region is on the rise. There are other factors such as Brazilian strike and ending of Nigerian ceasefire causing supply worries. It is likely that crude could test $150 this week. It is more likely to range between $135 and $155 a barrel, according to Angel Commodities.

On MCX, July contract could face resistance at Rs 6,550-a-barrel, but draw support at Rs 5,710.

Metals

Inflation worries and rising crude prices could make the metals market volatile this week. But aluminium and zinc appear to gain after China’s move to cut production.

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