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Gold set for further short-term gains

MNB

An analyst sees $1,100 as next milestone for globally climbing gold prices.

Chennai, March 16 Gold prices crossed the psychological buoyant mark of $1,000-an-ounce last week, both in spot and futures. While the futures have closed just below the $1,000-mark, spot gold has ended at $1,002.32.

Silver continues to rule firm, but hasn’t really steamed ahead like gold. This, analysts say, is one reason for investors to look for further gains in both gold and silver, at least in the short term.

Definitely, the US recession seems to be the main driver. And there is a general consensus that gold will support the later stages of recession, especially when interest rates are cut.

Also, the economy, the US in particular, is under severe stress due to the credit markets squeeze. This is seen leading to the economic stress and, therefore, gold is seen as the best hedge against both the recession and currency weakness.

Investors and speculators, in particular, are investing in gold just because it is the only one remaining firm. The more the investors buy gold, the more speculators are in the market. This is seen as a positive factor that could drive gold further higher to even $1,100 in the near term.

In fact, a school of thought feels the gold market can easily handle $3,000-$5,000, given the current economic conditions. The latest Commitment of Traders data show that large speculators hold 49% of the open positions, followed by commercial hedgers at 21%.

This year, gold’s return has been positive at nearly 20%, while something like the Standard and Poor Index has declined by 12%. If one were to go by comments in the market, then gold’s best is yet to come.

Actually, market pundits relate the current action in the market to what happened during 1979-80, when gold prices trebled within a matter of few weeks. Data show that the number of long speculators are the highest-ever in the gold market at over three-lakh contracts.

The open positions in the market are four times the normal. This is one of the reasons why the short-term outlook is seen positive for gold.

A couple of other factors driving gold prices are investments by institutional investors and supply crisis due to power woes in South Africa. In fact, South African gold production declined in February due to power problems.

The next trigger point for gold is the Fed rate cut that is expected on March 18.

This could buoy gold further, unless until the Fed thinks enough is enough with rate cuts, which is beginning to trigger inflation.

According to Angel Research, spot gold will meet with stiff resistance at $1,050 levels while it is seen well supported at $960 levels.

Silver has not run up as gold and, therefore, it could be its turn to rise next. That is seen as one which could help gold to move further. Spot silver, according to Angel, will find strong support at $19.70 levels, while resistance is seen at $21.20 levels.

Crude could show signs of easing as economic indicators aren’t good for it and, therefore, metals could see some pressure. (thehindubusinessline)

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