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Tuesday, January 06, 2009

Gold extends losing spree, medium term outlook still positive

Local futures find support above Rs 13000 in intraday moves

Gold eased today, extending the recent spree of losses as traders continued to sell the yellow metal in response to the return of risk appetite in the global asset markets. The credit markets, frozen for most of the time after the collapse of Lehman brothers in October last year, have started showing signs of coming back to life and easing interbank lending rates are also auguring well from the point of the view of the market sentiments.

A growing sense of normalcy in the risky assets arena is acting the other way round for the Gold prices. The yellow metal slipped to a low of $838.80 per ounce for the benchmark COMEX futures and currently trades at $844.80, down $13 per ounce from the previous close. The metal started the new year on a rather disastrous note, giving away bulk of its prior gains with the failure of the commodity to break above $900 per ounce mark acting as a crucial psychological factor for a retreat in the commodity.

The year 2009 is expected to be generally a very positive one for Gold. The metal hold on well amid asset prices, which fell like pack of cards. The year 2008, already registered in the history as the most turbulent year for the global financial markets has put and end to the world of finance as it used to be known.

The US investment banking space has been wiped out of the top five names. These are the very names which stood through it all, seen and witnessed it all- the outrageous bonuses for the investment bankers, the slender returns to shareholders, the bursting of the internet bubble, the crisis following the collapse of Long-Term Capital Management. The big entities were supposedly built to last forever and the year 2008 has made the global investment community to shrug this idea aside.

This is what supported Gold throughout 2008 is likely to support in 2009 as well. The current retreat in the yellow metal, much of a function of stabilization in the risky assets market and stronger US dollar-, which trades around three week high against the Euro, may not last long.

On the domestic front, the Rs 13000 mark acted like a watershed threshold for the commodity and the benchmark MCX February contract raced upwards from a low of Rs 13094 per grams and currently trades at Rs 13198, down Rs 131 or one percent from the previous close.
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