The Hindu Business Line : Gold poised to scale higher levels next year

As we head towards the New Year, 2008 could be looked as a year that saw the gold market volatile. Gold opened around $650 an ounce to hit a record $1,032.80 in March before dropping to as low as $681 in October.

During the weekend, spot gold closed at $868.80 an ounce. In the futures market, February contracts closed at $869.70, a four per cent gain for the week.

Last week, gold gain has been attributed to the problem in Indo-Pakistan relations and, more importantly, the strafing of Gaza by Israeli defence forces.

Bullish indicator

But analysts view the gain last week differently. The fact that gold is above $850 is a bullish indicator and, therefore, it is seen as a support level.

The other indicator is that gold stocks with streetTRACKS gold shares are at a record 70 tonnes, Analysts have given a buy signal for the shares.

However, a more firm signal for gold will emanate only if it goes past $930. But signals for this are positive.

Positive signals

According to Mr John R. Ing of Maison Placement, Canada, the world is awash with dollars but a search for alternatives to it is on.

He sees devaluation of the dollar around the corner and says it is better to hold gold than cash in the current circumstances.

Gold is being hoarded like cash and it is evident from the fact that the American gold eagle coins in quarter and half ounces are unavailable.

The World Gold Council, a body of gold-producing nations, has reported a $32-billion demand for gold in the third quarter. In fact, of late, gold’s rise is related to physical demand.

Investment-driven

Current, demand for gold is investment-driven. Mined supply is shrinking and, therefore, supply is plunging. Mr Ing says gold is witnessing an increased physical demand.

The dollar is also seen weakening due to monetisation of the US’s massive debt. He sees a dollar crisis looming around with the debt crisis and, therefore, there is all the likelihood of gold heading towards $2,000.

According to Mr John Browne, Senior Marketing Strategist for euro, there is every likelihood of a massive devaluation of the dollar against gold in 2009.

The US President-elect, Mr Barack Obama, and the US Fed Chief, Mr Ben Bernanke, are students of the former US president, Mr Frank D. Roosevelt, and, therefore, there should be no surprise if dollar is to be devalued sharply. (See box)

The Mumbai-based Angel Research sees gold support at $650 an ounce, though there are a few analysts who see gold even dropping to $500. It also sees resistance at $1,032.

Bright outlook

However, there is unanimity that gold, in the long term, holds promise.

With regard to crude, there is a possibility that it could recover if there are signs of a reviving economy.

The result of the Chinese measures to help its economy recover holds the key for the base metals counter rebounding.

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