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Gold likely to trade sideways

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Profit taking has become the norm

INVESTORS' FAVOURITE: A worker giving finishing touches to a gold ornament at a manufacturing unit in Kochi. Rise in crude oil prices, strengthening of inflationary pressure, signs of stagnation in the real estate market and tension in West Asia have made gold a darling of investors. During the weekend, gold was quoted at $620.20 an ounce for August delivery. - K.K. Mustafah
INVESTORS' FAVOURITE: A worker giving finishing touches to a gold ornament at a manufacturing unit in Kochi. Rise in crude oil prices, strengthening of inflationary pressure, signs of stagnation in the real estate market and tension in West Asia have made gold a darling of investors. During the weekend, gold was quoted at $620.20 an ounce for August delivery. - K.K. Mustafah

G. Chandrashekhar

Mumbai, July 23

Gold market continues to remain edgy with investors ready to cut their long positions at every rise in price. Profit taking has become the norm in the absence of a clear direction for the market already buffeted by rapidly changing geopolitical situation, inflation versus growth dilemma and gyrations of the dollar. On Friday, the yellow metal was quoted at $ 634 an ounce (London PM fix). Despite recent movements, speculators continue to hold moderately large net long position.

There is belief that the recent recovery - albeit modest - after the price collapse of May has provided fresh stimulus to players (read, speculators) in major consuming markets such as India and China who closely follow global trends. There appears to be renewed interest in gold in anticipation of a further price rise. Given the US economic data and less hawkish stance of the Fed, many believe it is only a matter of time before the dollar begins to weaken, something that would be positive for gold.

Geopolitics, as always, will continue to play its part.

Little wonder then that in the absence of clear market impacting developments, gold is increasingly moving on the basis of technical factors, which remain in the forefront of market's attention.

Next round of targets

According to technical analysts, the 21-day average of $621 continues to provide support but a price fall below such level is likely to trigger further downward movement especially as momentum continues to fade. Analysts are looking for $590 and $560 as the next round of targets. The recent nervousness in the gold market may continue to persist over the coming weeks as the market lacks clear signs of direction. However, the macro-economic environment, which could result in weakening dollar, is positive for gold. Any further escalation of tension in West Asia will also support the yellow metal. Overall, one could expect gold to continue to trade in a largely sideways pattern in the next few days with the impact of dollar movements, interest rate cycle and geopolitical developments providing much of the market's direction.

(This article was published in the Business Line print edition dated July 24, 2006)
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