The Hindu Business Line : Gold likely to test $950 level this week

Gold regained some shine last week, particularly during the weekend when a rise in US core inflation boosted its fortunes. The yellow metal is seen as a good hedge against inflation and not surprisingly, it finished the week on a strong wicket.

Gold for June delivery ended at $931.30 and spot gold closed at $930.70 an ounce. Open interest during the weekend was 3,62,725, nearly half of the position during the same period a year ago.

Long speculators hold 51 per cent of the non-commercial positions, while hedgers hold 71 per cent majority of the commercial positions.

Bullish outlook

Mr Jerffrey Nichols, Managing Director of American Precious Metals Advisors, says the bullish outlook for gold rests on the increasing likelihood of accelerating US inflation in the years to come and an associated unprecedented rise in investor demand for the yellow metal.

There were two other events last week that are seen fundamentally pushing gold higher, though a wider economic picture seems to have put that in the background.

One was the fact that China has increased its gold reserves 75 per cent to 1,054 tonnes. It is likely to increase it further, a bullish factor.

Hedging

Two, the South African firm Anglo Gold said it has cut its hedging position which means it is bullish on gold. Usually, gold mining companies will increase hedge against production, when they feel the prices may fall. But when they cut their hedging positions means, they are hoping for the prices to rise.

Gold, therefore, is seen testing $950 levels. The yellow metal is seen running into resistance in the $932-934 range. Support is seen first at $925 and below that at $917.

Analysts see $934.6 a key point before the yellow metal can climb higher.

On the other hand, bears see a few indicators that could take the precious metal towards $500 an ounce. The reason they point for this is that during 1979-80, gold hit $850 but within a couple of months slid to $500.

What has, however, to be noted is that twice gold has topped the $1,000-mark in the last 14 months but has not shown evidence of going to that level.

Bearish factors

Still, other bearish factors for the yellow metal are lower physical demand, especially for jewellery and less money with the people to buy gold. Though the World Gold Council has come out with a data of rise in offtake, it is seen more as investment-driven replacing jewellery demand.

Key data expected this week are the US Housing starts on May 19, US home sales and US jobless demand on May 20.

Supporting factor

A supporting factor for this is the holdings of exchange-traded funds in the country rising 20 per cent last month and world largest gold-traded fund SPDR’s holdings at 1,105.62 tonnes. This is, however, lower than 1,127.37 tonnes a couple of months ago.

In the domestic market, this week gold is expected to find good support at Rs 14,700-14,720 for 10 gm levels. A strong support is seen at Rs 14,540-14,560 levels, according to Angel Commodities.

Trading below Rs 14,540 would lead to prices falling towards Rs 14,290 and finally towards the major support at Rs 14,080. Angel Commodities puts the resistance in the range of Rs 14,980-15,000. A strong resistance is seen at Rs 15,190-15,200. Trading above Rs 15,200 would lead towards Rs 15,590.

The broking firm sees silver finding support in the Rs 22,270-22,300 a kg levels. Strong support is seen at Rs 21,900-21,920 levels. Below Rs 21,900 would lead to prices towards Rs 21,600 levels.

On the upper side, resistance will be in the range of Rs 22,940-22,950 and more strongly at Rs 23,200. If it overcomes the resistance it could climb towards Rs 23,560 and past it to Rs 24,000.

Copper is seen bullish this week globally, though crude oil is seen a little week.

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