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Wednesday, August 26, 2009

Gold attached to $950 as traders search for direction

Fresh buying on MCX as prices stay above Rs 15k convincingly

Gold stayed glued near $950 per ounce mark today, reluctant to move up either ways as traders took their time in understanding the underlying momentum in the commodity, which has been finding good support in the face of strong investment demand and rising commodity prices. Traders are searching for a clear direction in the metal as there are talks of prices succumbing to selling pressure with the broad zone of $900-925 being visited yet again.

Investment demand for gold remained very strong in the second quarter of 2009, rising 46% on year earlier levels as investors continued a flight to quality. Overall demand for gold fell back from recent high levels as weak economic conditions and high gold prices combined to impact demand. Although gold demand remains very high on a historical basis, total demand in Q2'09 was down 9% on the levels of a year earlier, a 6% decline in $US value terms to $US21.3b.

The WGC also said that China could overtake India as the world's largest gold consumer within the next 10 years, or even as early as within the next five years. Gold only accounts for 2% of the total reserves held by China's central bank. If China's reserves continue to grow rapidly, more gold would be required just to maintain a constant proportion. China is the largest holder of US government bonds and more than once, they have expressed their concern about the value of the dollar.

Euro slipped a little in London after gaining fervor post an upbeat piece of economic data from Germany. Business conditions have improved above expectations in Germany in August, according to the Ifo Index, which rose to 90.5 from 87.3 in July, beating experts expectations of a reading around 89.0, showing furthe3r signs of recovery on Euro Zone's main economy.

The Assessment about the current economic conditions, has improved to 86.1 in August from 84.3 in July, and the business expectations rose to 95.0 in August from 90.4 in July. German gross domestic product (GDP) grew by 0.3 percent in the second quarter of 2009, official data confirmed on Tuesday, boosted by private consumption and net trade as imports slumped.

Earlier in Asia, the U.S. dollar moved in a tight range against major currencies in cautious trading Wednesday, after rebounding during North American trade. The Euro/ USD pair was quoting at 1.4290 when last seen, easing from a high of 1.4352.

Gold has been largely unmoved over the last 48 hours and the COMEX Gold futures for December edged up to a high of $951.70. The counter was last seen quoting at $949.30, up $3.30 per ounce from the previous close.

MCX Gold futures for October are trading at Rs 15035 per 10 grams, up Rs 71 per 10 grams or 0.47% from the previous close. The open interest is up 1.80%, indicating fresh buying as further evidence of Rs 15k getting breached convincingly stemmed out today.
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