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Tuesday, January 13, 2009

Gold fails to recover as dollar holds up

MCX gold lingers below Rs 13000, short selling expected to pick up soon

It was a sense of deju va for the global financial markets with the conditions which remained in vogue for much of the last six months of 2008 seemed to come back in action. US dollar advanced against the Euro and continued to pressure the commodities complex.

Gold continued to stay lower notwithstanding the collapse in the equity markets and an expected surge in the physical buying. Gold prices are maintaining their losses for a second day. Dollar continues to trade stronger against the Euro and the weakness in oil prices is keeping the yellow metal under check. The failure of the yellow metal to find solace around $850 levels has been one of the big deterrents for a sustained recovery to take place.

COMEX Gold futures eased to a low of $814.70 per ounce today and currently trade at $818.80, down $2.20 per ounce from the previous close. The domestic futures are quoting below the key Rs 13000 levels and if prices stay below this mark, short selling activity is likely to increase in the counter. The MCX Gold futures for February are trading at Rs 12898, down Rs 96 per 10 grams or 0.74% with 2.23% increase in the open interest.

Meanwhile, traders are looking the new administration in the US to swing into immediate action and with US interest rates effectively at zero, many people are wondering what to expect from the US government. On Tuesday January 20th, Barack Obama would user as the US president and may trigger a set of efforts, which would be entirely different than what we have seen so far.

Barack Obama said that he has already asked President Bush to tap the rest of the TARP fund. The Bush Administration has already used $350 billion, leaving another $350 billion for the Obama Administration. Obama plans on using the money to help ease housing foreclosures and small businesses. This is a dramatic shift from the Bush Administration who spent the first half of the TARP funds providing support for the banking sector. This is likely to assist the US dollar from hereon, particularly against the Euro since the ECB is expected to cut its benchmark interest rates this week.

source: Capital Market

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