Gold Bullish - in the long term----

Pradeep Unni · #1 27th January 2007, 05:17 PM

Written on Jan 26, 2007 - the day after gold broke the $650 barrier:

Metals blast! but not without witnessing fatigue to proceed ahead. One of the prime reasons for yesterday’s rally was the technical and fund buying after spot gold breached the $650 level for the first time in more than 5 months. After the heavy crash in spot gold from the highs of $730 (May 12, 2006), the metal made its first attempt to rally above the $ 650 levels in July, 2006 (July 17, 2006). On the very day gold breached the $650 (on Jul 17, 2006) the metal had witnessed a $33 slump in prices from the highs of $730, thereby triggering a fresh round of selling till the lows of $ 601.60 (on July 24, 2006) and further towards lows of $ 559.40 (on Oct 4, 2006). Having failed in the repeated attempts to rally above the psychologically and technically important level, several times (on Aug 2, 2006, Sep 5, 2006 and Dec 1, 2006), its less surprising that market shied off quickly from the yesterday’s (Jan 25, 2007) highs of $654. This probably hints us of the fact that in markets ‘price pattern history repeats itself most often.’ The underlying in exaggerating the power of this level ($650) leads us to ‘what next for gold?

What is different in the current leg of rally is the amount of cautiousness and patience gold is carrying along with it and the broader fundamentals that are supporting a further upside room. The last leg of rally to $730 (May 2006) from was primarily triggered by reports of the launch of Exchange Traded Fund in silver by Barclays. The subsequent rally towards the $650 levels came from fears of Iran’s plan to go nuclear, North Korea’s missile tests and few other geo-political tensions, which quickly got sidelined or discounted in the markets.

The current market rally in gold bases on broader fundamentals like fears of decline in US economy, rising Euro zone, interest differentials and rising inflation in most parts the world. These fundamentals are long term and are not likely to be sidelined quickly by markets....This would continue to support the uptrend in gold.

The amount of cautiousness and the tactfulness that gold investors and traders are showing off currently needs a mention. Quick profit booking after every $10-15 rally, repeated confirmations of the uptrend being intact by large investor banks and few others (investment banks) doubling their bet on commodities hints that most investors view every slide as an opportunity to build their positions. REMEMBER - A BULL MARKET ISN'T WITHOUT WRINKLES

Mail me at Pradeepunni@rediff*********[/email];
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Regards
Pradeep Unni
Asst Vice President - Commodity Research / Trading

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