The Hindu Business Line : Gold may hit $950, but dollar likely to gain strength

Chennai, July 6 Gold prices are poised to hit $950 an ounce with crude ruling firm above $140 a barrel and economists pointing out that the world may have to live with oil above $150. But hopes of the dollar strengthening could temper the yellow metal.

Technical indicators point out to a positive trend in the short-term with the yellow metal closing at $933.60 an ounce during the weekend.

Prospects

Gold has had a good run during the past fortnight with gains coming in sympathy with rising crude oil prices. With crude oil being projected to rise further, gold’s prospects look good. Currently, it is crude that is seen as a major driver of gold rather than euro-dollar parity.

According to the charts, gold is seen strongly supported at $927. However, it may run into resistance once it touches $945. If the yellow metal can overcome the resistance then we can expect it to touch $950.

Inflation fears

Why should gold rise in line with crude? The market’s line of thought is simple. Rising crude oil is set to give way to inflation. When that happens, there can be no better bet than gold. And what we have witnessed during the last two weeks is this phenomenon.

But the higher price also gives room for other concern and these factors could come into play from time to time. One of the fallout of the high prices for gold is the fall in jewellery demand.

This has been amply demonstrated during the first half.

Falling imports

The other proof of price affect demand comes from Indian gold imports continuing to fall. In June, the imports declined by 68 per cent.

These concerns have been reflected in fall in decline in commercial holdings of hedgers. It has declined to 70 per cent from 72 per cent a couple of weeks ago.

Large speculators have also cut their non-commercial holdings by one percentage point to 47 per cent.

However, increasing interest in gold as an investment tool still holds the price line above $850 an ounce.

Analysts feel that as long as gold holds above $850, things are bound to be positive.

But what investors will have to watch out this week is how the dollar behaves.

The fortunes of silver, which closed at $18.310 during the weekend, are likely to toe that of gold.

Support for the white metal is at $18.02, while it is set to face resistance at $18.42.

Metals complex

Meanwhile, Angel Commodities in its outlook for base metals said a strong dollar could leave the complex volatile.

It said copper prices could turn weak, especially with miners in Peru calling off their strike. But falling inventories could limit the downside.

Soya seen higher

On the other hand, soyabean could trade higher and is seen positive in the short-term as stocks are lower and continued demand for soyameal. Angel Commodities said the August contract could trade higher with support at Rs 2,690.

However, resistance could come in at Rs 2,825.

Sugar prices are seen recovering 20-25 per cent in the short to medium term on lower crop estimates. Reports of lower acreage are supporting the prices.

Maize could rule weak with the Centre banning its exports till October 15.