Monday, June 2, 2008

Negative Signals For Gold In The Short Term

Chennai: Last week, gold dropped to a two-month low, giving credence to earlier views that every rally in gold has only been lower than the previous one. The precious metal slipped sharply and ended at $886.90

Pulling down gold last week were events such as stabilising dollar and receding fears of an economic recession in the US. The US data released during the weekend also seemed to be against the yellow metal.

Further positive news on the US economy can only hamper gold’s progress, which looks more likely now. Receding fears of recession also mean that investors are now looking at options other than gold. That’s one reason why gold tends to get hit when the economic outlook appears bright.

Geopolitical fears that existed a few months back are now receding, with the US heading for Presidential elections. India, too, is not helping the yellow metal’s cause, with no apparent signs of a pick-up in demand. ICICI Bank last week said it saw a fall in demand for gold in India this year. These signs are bearish enough to impact the precious metal.

Marriage buys

One aspect that is clear from the Indian angle is that the much-expected purchase for the marriage season has not taken place.

Also, the rabi crop harvest is over and most of the crops have reached the markets. Farmers have got better prices this time but that has not spurred them to invest in the yellow metal. Definitely not a sign that is encouraging or, maybe, we are facing the classic case of Indians being price-sensitive.

With the 40-day moving average below the average, short-term indicators are negative for gold. Along with it, the long-term indicators are also negative. Gold is also proving to be vulnerable to crude prices. With crude climbing off its record high of $137, gold has lost steam. On the crude front, the fear that high prices could affect demand has gripped the market and speculators.

For gold this week, the first test will be $887.9 an ounce, where it will face resistance. Past this, the next hurdle will be $901. At any cost, the $960 level could turn out to be a stumbling block in vaulting $1,000 again.

On the lower side, the precious metal will derive immediate support, on fall, at $866.5. Below this, it will get some protection at $859. According to Angel Broking, there is a possibility of gold testing $850 again and $834 from the base support. On the domestic futures exchanges, August gold will derive support at Rs 11,790 for 10 grams and below that at Rs 11,475. Resistance is first at Rs 12,650 and then at Rs 13,186.

Silver prices are expected to toe gold prices in near term. For mid-term, waning demand and rising dollar is expected to weigh its prices.

Crude Oil

Fears of a fall in demand are now turning to be bearish for crude and there are signs of growth in energy demand slowing. But long-term tight demand-supply fundamentals are indicators, according to Angel, of higher oil prices for coming days. It could touch $150 a barrel by the end of the year. Crude could derive support at $120 but firm resistance is in place at $135. Base metals could witness volatility. According to Angel Commodities, stocks in the LME warehouses could play a crucial role in the movement of the metals’ prices.

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