The Hindu Business Line : Gold seen ruling weak in the short term

Chennai, Aug. 3 Last week, gold dropped below $900 an ounce before recovering on Friday by about $30 as US data showed rising unemployment. Still before close, it shed some of its gains to close at $913.90 an ounce.

The fall of gold to nearly its one-month low is in a way seen as some sort of technical correction, which, analysts feel, is necessary since gold had run up very fast.

As the yellow metal attempts to stabilise itself, open interests have declined. Analysts, however, see this as a natural phenomenon. The other reason for gold to be a bit dormant at this stage is that there is no visible pick up in the physical demand.

Gold as a hedge

Analysts see the precious metal being bearish as long as it quotes below $930 an ounce.

While in the short term gold is seen ruling weak or turning negative, there are firm indications of the yellow metal gaining towards the year-end. The possibility of it touching $1,000 is not ruled out.

With prices of energy and agriculture products soaring in developing nations, things can only be positive for gold. The yellow metal is sure to be picked up as a hedge against inflation. Not that it will get a better price but it surely protects investments that are made from one’s wealth.

Gold & ETFs

The other aspect that holds promise for the yellow metal is the increasing faith in exchange-traded funds (ETFs). Data in the run up to the gold show that investments in ETFs increased when gold hit $1,000. Last year, investments in ETFs totaled seven per cent of the demand for gold.

With gold stocks also holding promise, ETFs investment in gold is likely to increase. This week, gold is likely to find support in the $904-$888 range. If it makes any headway, then it could face resistance at $922 and beyond that at $936.

According to Angel Commodities, MCX October gold contracts could find support at Rs 12,400 and below that at Rs 12,220 for 10 grams. Resistances are at Rs 12,690 and Rs 12,970.

Also, crude movements will have a definite sway over gold’s movements. Angel Commodities see crude oil deriving support at $120 a barrel and below that at $114. Resistance will first come at $127 and above that at $133.50.

MCX August crude futures may find support at Rs 5,100 a barrel and below that at Rs 4,845.

Support is first seen at Rs 5,395 and then at Rs 5,675. Meanwhile, the rise in zinc prices could be short-term.

Overall, the metals this week are expected to remain volatile and the dollar will play a major role in their movements.

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