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M.R. Subramani

Chennai, Aug. 31 Gold has been zig-zagging in the $800-850 range in the last couple of weeks, after having recovered from a low of $777 an ounce.

The problem with gold now is that its fortunes are tied with the movement of crude oil and currencies, in particular the dollar.

Therefore, the yellow metal is tending to drop when the greenback gains and vice-versa. The problem is that the euro has been looked as an alternative to the dollar; but, in reality, it is not proving to be so.

The firm opinion among economists is that the slowdown in the US is affecting the European Union and other developed economies too.

What is in store for the precious metal in the coming week? Everything will now hinge on the course hurricane Gustav will take. The hurricane, which has developed from a storm, has already left its trail of destruction in Jamaica, Haiti and the Dominican Republic, is now heading towards the US after sweeping through Cuba. The hurricane could hit the US Northern Gulf Coast sometime on Monday or Tuesday. The coast is home to almost 25 per cent of the crude oil and 15 per cent of the natural gas production in the US.

Why the hurricane is engaging everyone’s attention can be gauged by the fact that Mr John McCain, the Republican Presidential candidate in the US elections, and his running-mate, Ms Sarah Palin, have decided to suspend their normal election campaign and visit Mississippi to inspect preparations for the arrival of Gustav.

If the Gustav leaves a trail of destruction, there could be some bullishness in crude oil, which in turn could reflect on gold. But the question is how much will be the impact of destruction on crude oil. On Friday, crude dropped despite fears of the hurricane.

Analysts see gold being range-bound between $800 and $850 in the near term, despite short-term prospects being negative.

Gold, which closed at $834 an ounce during the weekend, faces a strong resistance at $845-846. At the same time, it is expected to be supported in the $821-826 range.

According to Angel Commodities, a fall below $800 could take gold towards $770.

It also says that crude oil could well be supported at $110 a barrel, while facing resistance at $125/132 a barrel.

Despite the short-term negative outlook, analysts feel that gold’s value is just not limited to protecting one’s wealth from currency fluctuations.

It, in fact, holds more value. In the meantime, the fall in gold to current levels has led to investors in the US buying bullion coins.

The demand has been so much that the US mint has suspended sales of the American Eagle coins.

With the US markets being closed for Labour Day on Monday and Indian markets being shut on Wednesday for Ganesh Chathurthi, the overall activity is likely to be a bit muted this week.

More Stories on : Gold & Silver | Outlook

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