Thursday, August 1st 04:05 PM IST

Gold trends indicate possibility of $1500 by end-2013

# gold  # interest rates  # gold demand  # festivals  

Perhaps, I may reserve the technical view on gold to a later day but some overview on technicals may be appropriate at this time. The Kitco charts for one year gold based on closing New York prices show a continous downard slope or in technical terminology a descending channel. It would require sustained break above $1400 to push prices higher to $1500 and later $1600 levels.

Photo Courtesy: BigStockPhoto

By Sreekumar Raghavan
(Note from the Editor: This outlook on Gold was published on August 1, when most of the analysts hadn't turned bullish at all. Subsequent market surge above $1400 reinforces some of the key enablers that could push the yellow metal above $1500 much before end of 2013)

KOCHI (Bullion Street): When it comes to Gold, just about everyone on the street is an expert. Last week, when I went to buy from the local grocer, he was also eager to know how the markets are faring but only that he himself had a view on gold and equities in general. But much of it has been gathered from hearsay or and not from any meaninful analysis of the markets.

As I have noted yesterday, gold bulls are cautiously returning but not many are venturing into any wild guess for the simple reason that they have often failed to accurately gauge market sentiments.

I am not overly bullish on gold but there are some indications already to show that gold could move higher.
- India's Finance Minister P Chidambaram has said that gold imports could fall to 845 tons this year due to import restrcitions.Lesser gold flow into a market which has an insatiable appetite for it, could signal further upward pressure on prices. Indian market is witnessing a seasonal weakness and hence prices are bound to go up until it attains a peak during Diwali festivities, wedding season.

-China's demand is witnessing a surge which could continue to provide support for gold, so is some buying by Central banks.

- Physical demand continues to overpower any distortions created in the market by the derivatives, according to Mark Mobius of Templeton Investments.

-Jeff Nichols, precious metals economist in an analysis has already mentioned about the possibility of staflation in US economy generating a bullish scenario for gold.

Perhaps, I may reserve the technical view on gold to a later day but some overview on technicals may be appropriate at this time. The Kitco charts for one year gold based on closing New York prices show a continous downard slope or in technical terminology a descending channel. It would require sustained break above $1400 to push prices higher to $1500 and later $1600 levels.

However the 30-day charts show a rising wedge which is a reversal pattern that shows up typically in a bear market. Rising wedge usually provides a low risk/high reward ratio but there are other aspects to be looked into including volume although targets are achieved quickly, according to technical experts.

Recent data from US Commodity Futures Trading Commission (CFTC) also indicate long positions by managed futures has increased by 5256 while short positions had fallen by 8257.

Meanwhile, the World Gold Council has published a new research report on the link between US interest rates and gold prices. It said that a normal rate of interest from 0-4% is not adverse to gold eventhough a low rate environment is more conducive for the metal.

Juan Carlos Artigas, Head of Investment Research at the World Gold Council said: While headlines have focused on the recent price moves, the long term drivers of gold including emerging market growth and central bank demand hold firm, particularly when combined with a likely reduction in supply from both mine production and recycling. Even with the highest rate of interest, the core value of gold is to balance out a portfolio. Most investors are under allocated; optimal levels are identified as between 2% and 10%.”

Hence, present trends including a possible threat of tapering of QE is not entirely negative for gold while some really positive factors are in the background providing firm support. Therefore, given a strong push above $1400 in next two months could see prices moving higher to $1550-1600 levels.

(The author is Chief Strategist at Commodity Online, Email: info@bullionstreet.com)



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