The Hindu Business Line : Gold faces downside risk on long liquidation

GOLD has got stuck in the recent range of $433-438 an ounce, and continues to take its cue from euro movements. There seems to be a lack of catalyst to drive prices in either direction, while investors have turned cautious.

Record speculative length in gold is widely believed to limit the upside for gold prices, despite nature (hurricane in the US) supporting high crude prices for the time being.

The yellow metal has been struggling to break above $ 440 an ounce, but unsuccessfully so far.

As Hurricane Katrina drove oil prices to a record high and put downward pressure on the dollar, gold briefly breached recent resistance of $440/oz on Monday; but the gain was short-lived with prices easing back as the dollar recovered some ground.

By noon on Wednesday), gold was trading in London at at $ 433.25/oz, while trading was reported to be lacklustre in Asia and physical activity muted.

The latest CFTC data showed that in the week to August 23, long liquidation was offset by short covering, resulting in a rise of contracts to a fresh all-time high in the speculative net futures-only position in gold, creating condition for further long liquidation.

"This (high speculative net futures) will continue to leave gold extremely vulnerable to further long liquidation, and we still believe near-term risks are skewed to the downside, though of course, dependent on euro-dollar movements," commented a precious metals experts with Barclays Capital.

Release of key data in the US during the week would also have an impact on the precious metals market.

Optimism about Indian demand could wane given the threat agricultural output is facing. Lack of precipitation over last two weeks is beginning to cause concern.

Reuters reports: In London, spot gold had edged up to $432.20/433.00 a troy ounce, gaining on late levels in New York on Tuesday at $431.00/431.80. Spot silver rose to $6.75/6.77 a troy ounce by 1041 GMT versus New York's previous $6.68/6.71.

Platinum inched up to $889/893 from $887 /892, while palladium was flat at $182/185.

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