'Next rally of Gold will be at $930-950 levels'

January 27, 2009

By Madan Lal Teli
Prices of gold and silver rocketed on last Friday and this has invited a short to medium term bull run for the precious metals. Safe haven buying of yellow metal spurred the price of white metal too. Gold remained star performer last week after three incessant minor weekly losses. On Friday gold kissed 900 USD/oz levels but didn’t manage to close above the psychological barrier but closed well above the strong previous resistance levels of 892 USD/oz. Gold may touch the levels of 932 USD/oz this week.

At present it is unwise to say that gold is in complete Bull Run because in technical view the 100 day simple moving average is below the 200 day simple moving average. The yellow metal may also face the resistance from the retracement levels of 61.80% or 900 USD/oz. Gold rose 61.80% from its lows of 681 USD/oz (24th October 2008) compare to its all time high 1033 USD/oz (17th march 2008).

Currency markets may put pressure on gold prices. Dollar index is likely to touch 90 levels. The poor UK GDP data on 23rd January aggravated the fall speed in Euro and Pound (GBP) against the US Greenback and this rising dollar can put full stop on commodity prices at some extent.

Hence gold may consolidate between 880 USD/oz and 935 USD/oz for next week and then it may pursue the northward journey.

As far fundamentals are concerned gold may likely to gain more importance and become the choice of investors in coming weeks. The record shrinkage of UK GDP (The British economy contracted at its fastest quarterly pace in nearly 29 years during the final three months of 2008, government data disclosed on Friday, 23rd January 2009) and considerable damage to other European countries has inspired investors for gold buying on week ended Friday, 23rd January.

The closures of mining operations and the limitation in mining activities such as rising mining costs, availability of new areas and faltering demand of mining byproducts etc. has made safe haven instrument investors’ choice yesterday. The fresh talks of stimulus packages and money injections in Australia, United States of America and Europe may also forebode well for the precious metals. Liquidation of gold may cause significant short term damage to gold prices but in long run also may not able to halt the gold bulls.

Gold is treated as an ultimate asset since ancient period and known for its intrinsic value which led smoothened appreciation in prices for last 8 years. Now at present the whole world witnessing either recession or slowdown, equities (stocks) are heading southwards and key sectors such as housing sector, mining, banking, financial investment instruments etc. are in disastrous stage.

Hence gold may perform better than any other investment instrument in this crisis situation. Yellow metal may attract significant investment in coming weeks. If Gold continues recent rally, we can see the next levels of 930 USD/oz and the 950 USD/oz very soon.

Madan Lal Teli is a Commodity Market Technical Analyst with Safe Trade Advisors

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