Gold prices may be on the slide

Budget 2008, Run up to budget

The commodity bourses hogged the limelight last week with commodities setting records after records. Platinum traded at an all-time high and went above $2200, Palladium above $500 and Rhodium within a spitting distance of $9000. The agri commodities were not far behind either: wheat, soya and maize made exciting trading patterns. Of course, gold and silver, too, scaled fresh peaks. Gold went up all the way to $954 during the week while silver reached a fresh 27-year high by going beyond $18 threshold.

Tuesday saw the beginning of the rally, and on that day itself the price went beyond $920 an ounce. Wednesday saw the price beginning from a vantage point at $928 in cash market, and thus did not have much difficulty to go beyond $940 mark. Thursday took the prices way beyond $950 level, all the way to $954.70, yet another record. The market cooled down a bit on Friday yet the price closed at a very healthy $944.60 an ounce, registering the best weekly gain in decades.

With the sustained weakness in US dollar, the push to the precision metals was automatic. The dollar fell to a three-week low against the euro on concerns that the Federal Reserve will cut borrowing costs to avert a recession. (The dollar has lost 11 per cent against the euro in the past year.)

The real push to gold, however, came from the astonishing rise in the crude price. Crude oil advanced to an all time high price of $101.32 a barrel in New York. The main driver to the oil prices came from the speculation that the OPEC, due to meet on March 5, is expected to cut output as winter heating demand wanes.

The across the board rise in commodities price during this week is clear indication that the investors are piling in their investible funds in the commodities sector, after having taken a heavy beating in stocks around the world. The most important news during the week in precious metals market was that China surpassed the US to become the world’s second-largest market for gold jewellery.

Coming to trading during the new week, the economic indicators due this week are existing home sales on Monday, producer price index and consumer confidence on Tuesday, new home sales on Wednesday, GDP numbers and jobless claims on Thursday. The prices are likely to stay volatile during the week, and there is a very strong case for decline in the gold prices this week.

According to statistics released by the World Gold Council (WGC) the sales of gold jewellery reached a record high of 302.2 tonnes, up by 34 per cent and second only to India.

The remarkable thing is that the consumption in China went up exactly in a year when it fell in the US, supposedly a price-inelastic buyer. In 2007, the demand for gold in the US saw a 14 per cent year-on-year drop. Even the gold market in Italy and Britain slumped, but the Red country sales were up. Another remarkable fact is that the Chinese buying has increased at a time when the gold prices are reaching the skies and smashing one record after another. China saw a 20 per cent year-on-year growth in gold jewellery sales in the last quarter of 2007 – the very period when the price of gold was going up remarkably.

The economic indicators due this week are existing home sales on Monday, producer price index and consumer confidence on Tuesday, new home sales on Wednesday, GDP numbers and jobless claims on Thursday.

The prices are likely to stay volatile during the week, and there is a very strong case for decline in the gold prices this week.

The market is top heavy and thus needs to be attempted with greatest caution.

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