Gold fundamental turns bullish

Gold again seems to be finding favour with bulls as sharp recovery in gold prices in last few days. Market has ruled that US debt ceiling issue has been postponed and not resolved and hence fundamentally the yellow metal has turned bullish as demand for gold is expected to continue for the purpose of hedging risk for one or two quarters at least. Today however the gold has stabilized and in international market it was quoting around $1314, which is $3 lower than yesterday’s level. In Mumbai’s zaveri bazar, gold was Rs.20 down to close at Rs.30,950 per 10 gram.
The 16-day standoff between the Democrats and the Republicans in the United States had traders on tenterhooks all the while, sending them to seek refuge in gold as a safe haven against uncertainties in the economy. In fact, gold prices have recouped about 3% of their losses till date since the shutdown began on Oct 1. gold had lost almost a whopping $500 or over 25% of their value since the start of the financial year.
Technical analysts with the Thomson Reuters said, however, “ technically gold is not in bullish zone yet. major support for gold is at the June low of $1,180/ounce, on the upside there is resistance at $1,336 (the 38.2% retracement of the Jun-Aug rally) and $1,433/ounce. With silver we are looking at resistance at $22.46 and support at $19.17, or all the way to its June low of $18.23. ” Contrary to general perception, the 11th-hour deal ending the Government’s shutdown and preventing a sovereign debt default gold prices went up as marlet felt that the solution to US debt issue in temporary.
The rally in gold prices is expected to continue as the deal has been seen as only a temporary relief in the months running up to February 7, another crucial date in the US debt ceiling crisis until when the $16.7 trillion debt level has been raised. “In fact no real agreement has been reached. It has just been postponed to another date. As long as the stalemate continues, gold will continue to offer solace to investors,” says an Illinois-based analyst.
In addition, the political bickering in Washington has only fuelled more tensions in the market and speculation is rife that the U.S. Federal Reserve may delay its stimulus tapering until the crisis eases and current Fed Chief Ben Bernanke steps down in January 2014. Credit ratings agency Fitch has warned that the Unites States’ prized AAA credit rating is under watch.
“Gold is benefiting from renewed investor interest in response to the fact that the US’ problems have yet again been deferred rather than resolved. If the Treasury market comes under pressure next year as it may, with yet another debt ceiling round, this will put renewed stress on the banks,” says Rhona O’Connell, Head of Metals Research & Forecasts at Thomson Reuters.
With such uncertainty in place, the Fed may delay its decision to begin tapering until at least March next year when some political agreement over the debt ceiling may have been achieved. In addition, Janet Yellen, the next Fed Chief is said to be “dovish,” further delaying tapering. The Fed is committed to purchasing $85 billion in new debt per month as part of its quantitative easing. These measures from the US central bank support gold prices as extra liquidity tends to debase the dollar and create future inflationary risks.
Analyst Sugandha Sachdeva of Religare Securities also throws light on increased physical demand for gold from India ahead of Dhanteras and Diwali, while Indonesian demand is also rising with Eid purchases and Muharram around the corner. “For now, the debt ceiling has been kicked down the road to February 7, when we will once again be forced to watch the painful spectacle of US politicians deciding whether or not to default,” says London-based Abhishek Deshpande, lead oil analyst at Natixis. “It is no surprise that the major creditor nations are upset with the US, and comments from both Chinese and Japanese spokesmen clearly demonstrate a high degree of on-going concern.”
Source: Business-Standard
Source:Bullion Bulletin

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