The Hindu Business Line : Short-term pressure in gold likely

Gold witnessed a roller-coaster ride last week, first tending to hit the $1,000-an-ounce mark, before running out of breath and closed lower than last week. Gold closed at $955.40 an ounce against last week’s $960.60.

Technical indicators point to $955 as a crucial support and it is an important feature to watch out as the market opens on Monday.

Last week, everything seemed to cool down except Indian politics. Talking of India, pictures emerging for gold’s support are not encouraging. Before that, let us look at the global picture.

Global picture

The West Asia tension following a standoff between Iran and Israel, with the US too being in the picture, eased. Geo-political fears were the ones to first drive gold up.

Next, crude, which was seen as one that has been behind the yellow metal’s current bull run, began to cool down. This was on fears that the US economy growth may slowdown and demand for crude products could decline. As crude declined, fears of inflation receded and in turn, gold came under pressure.

Third, results of the Citigroup on Friday propped up the dollar.

It also showed that the global financial crisis was under control. This week, results of JPMorgan will be under the scanner and it would further dictate the course of the dollar and, in turn, gold.

However, write-down levels by these financial institutions are high and therefore, investors’ tendency to look for quality investments could profit gold.

There was also good news from the International Monetary Fund, which has raised the global economic growth prospects to 4.3 per cent from the previous 3.7 per cent.

Domestic Picture

Now, let’s examine the Indian scenario. One, the rupee has declined against the dollar and this has made import of gold costlier. Two, consumers in India have begun to resist higher prices and, therefore, retail outlets are now reporting sharp fall in jewellery sales. And nothing proved as bad as last week, when retailers in Chennai reported over 50 per cent fall in sales. Not surprisingly then, gold imports during April-June quarter halved.

Again, monsoon is playing truant in the Western and Southern parts and this could affect prospects of gold during the remaining part of the year.

Reports of drop in coverage of cash crops such as oilseeds and cotton aren’t good for gold. However, the global bullion market has shown during the course of the last six months that India doesn’t hold the key anymore for the yellow metal’s fortunes.

With gold turning more as an investment tool, demand seems to emanate from funds now.

Technically, gold could find support at $947 and below that it could hover in the $938-915 band. A rise could see stiff resistance at $973 and beyond that, it could be caught in the $990-1,012 range.

According to Angel Commodities, MCX August gold could find support at Rs 13,075-12,850 for 10 gm. Resistance may emerge at Rs 13,450-13,600 for 10 gm.

Crude

Though demand seems to be weakening for crude in the developed nations, its consumption is set to rise in China and India.

But crude is seen falling in the short-term, though in the long run, it could scale new highs with supply threats emerging from Iran and Nigeria.

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