As was discussed in this column last week, the gold did ultimately go took a rough-and-tumble ride.
Any weakness will be a buying opportunity
MUMBAI: As was discussed in this column last week, the gold did ultimately go took a rough-and-tumble ride. However, since the metal has the habit of surprising everybody, before it went through a much-needed correction, it took wing, like a Peregrine Falcon, soaring high and flying fast. The price on Monday came within a whisker of $915 — the all- time high gold price in nominal dollars. However, by the mid week the correction had set in, given the fact that the overbought position at the Comex was uncomfortably high, and by the time the week came to an end, the price had slid to $880 level.
On Monday gold stayed above $900 almost throughout the day. On Tuesday, the euphoria continued and gold stayed again much above $900 throughout the Indian trading hours. However, soon the panic set in; the price was overdone and with the RSI zooming into the nineties, gold became a victim of overbuying. Speculative interest was at the extreme levels with heavy amount of leverage money having entered the fray. The meltdown was imminent, and it occurred right on Tuesday it lost more than $20 per ounce.
On Wednesday, the cash market opened slightly lower than $890, and then climbed above that number, but by then the bears seemed to have got a hold of the market, and drove the price all the way down to $874 level.
Thursday saw another price crash after the Fed chairman Bernanke said that the outlook for US growth in 2008 “has worsened”. This news had been preceded by the news of Merrill Lynch & Co reporting a loss that was more than double analysts’ estimates, reinforcing speculation the US economy will slide into recession. The New York-based Merrill’s writedown of at least $15 billion of failed investments bolstered speculation the Federal Reserve will cut its benchmark interest rate by at least a half percentage point this month to support the economy.
The new week is likely to see gold trading in a narrow range because the investors in other markets are losing their nerves. The fundamentals of gold are exactly the same as they were a week back, when the price zoomed upwards of $900 an ounce. However the moving averages have fallen, and the euphoric feeling has given way to some bearish sentiment, arising out of way too high prices seen during the second week of the new year.
No doubt the market may stay slightly weaker or undecided as the large players are now waiting for the ensuing FOMC meeting on January 30 about the rate cut.
Though the market is mentally ready for a 50 point rate cut, and is indeed screaming for it, given the indications to the effect delivered by none other than Ben Bernanke, the match will not be over till the last ball is bowled, and the market will continue to be jittery till the FOMC announcement is actually made for a 50 basis point cut. This may lead to some weaker sentiment, however weakness from these prices must be seen as buying opportunities.
Gold is absolutely ripe for $1000 price this year. Nothing is going to stop it.
editor@commodityresearch.in
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