INTERVIEW: Gold To Hit $1,800 As Monetary Velocity Picks Up - National Bank of Canada

By Neils Christensen of Kitco News
Tuesday July 30, 2013 1:35 PM

(Kitco News) - With so much liquidity already in the monetary system, it doesn’t matter if the Federal Reserve tapers its $85 billion bond-purchase program said an analyst at the National Bank of Canada.

Paolo Lostritto the director of equity research in mining and metals for National Bank Financial, in Toronto, said he is expecting inflationary pressures to be correlated to money velocity and despite short-term volatility, expects prices to hit $1,800 in the long-term.

Despite, his long-term bullish forecast, Lostritto is expecting gold prices to remain weak in the near-term as the market digests positive real interest rates, strong redemptions in gold-backed exchange-traded funds and deflationary concerns. In a report released July 21, Lostritto lowered his 2013 forecast for gold prices to $1,300 an ounce from $1,600 an ounce. He also expects the price to remain in that area through 2014.

Although prices can move lower in the near-term as volatility remains high, Lostritto said it is important to keep an eye on the long-term price action.

“If you have a three to five year horizon then I think now is a great time to buy,” he said.

Lostritto said his models, related to inflation, money supply, demonstrate it is only a matter of time before prices push higher in the long-term. He added inflation will pick up when the monetary velocity starts to increase – the churning of the supply already in the system.

“I think the Fed has bought itself about two years before inflation shows up because it is the least dirtyshirt out there,” he said in an interview with Kitco News. 

Lostritto said there is a big misconception that as soon as the Fed stops its bond purchasing program the excess liquidity will dry up.

Since inflation hasn’t shown up in the economy, investors aren’t paying attention to the excess liquidity, he said. But inflation has been nonexistent because banks and corporations have been hording their cash, which has caused a dramatic drop in the money supply, he added.

“We’ve been in a classic Keynesian liquidity trap,” he said. “We could be near the tail the end of that liquidity trap.”

Lostritto looked to automotives to describe the current economic situation. The Fed’s quantitative easing policies have filled up the gas tank and now corporations -- feeling a little bit more optimistic about the improving economy -- are ready to hit the gas, which will drive up inflation, he said.

Looking forward, Lostritto said it is important investors pay attention to the velocity of the monetary supply in the system. He added the fact that the S&P 500 continues to hit all-time highs is an indication that velocity is starting to pickup.

By Neils Christensen of Kitco News nchristensen@kitco.com

http://www.kitco.com/news/2013-07-30/Gold-To-Hit-$1,800-As-Monetary-Velocity-Picks-Up-National-Bank-of-Canada.html

Peter Schiff: Buy Gold and Silver Now, Money Printing Until We Have a Currency Crisis....

Gold Bullion Adds 2% for Week as China Overtakes India as World No.1

Friday, 7/26/2013 13:15

The PRICE of gold bullion retreated $15 from an overnight rise to $1340 per ounce in London on Friday morning, trading 2.1% higher for the week by lunchtime.

Silver prices slipped back to drop below $20 per ounce – a 33-month low when first breached in June.

Japanese stocks meantime fell hard as the Yen rose on the currency markets, and European equities slipped with commodities. 

Government bond prices held steady, with 10-year US Treasury yields at 2.57%.

The US Federal Reserve next announces interest-rate and quantitative easing policy on Wednesday.

"I don't really see how gold can go much higher," says Matthew Turner, precious metals analyst at Australian bank Macquarie.

"After all the shenanigans of the last few weeks, we know that [QE] tapering at some point is clearly still the policy."

China's households will meantime overtake India as the world's No.1 buyer of goldin 2013, said Marcus Grubb, managing director for investment at market-development organization the World Gold Council, on Thursday.

Buying perhaps 1,000 tonnes of gold – around 1 ounce in every 4 sold worldwide in 2013 – China is growing its jewellery demand, Grubb  says, but not as fast as it's growing demand for investment gold bars and coin.

Analysts have been forecasting China to overtake India since late 2009.

Investment bank and bullion market-maker Societe Generale yesterday warned thatgold-price volatility looks certain if there's a "hard landing" in China's economy.

"Gold purchases by central banks have noticeably slowed of late," says a note from Germany's Commerzbank, pointing to the 400 tonnes forecast for 2013 against last year's 532 tonnes.

New data from the International Monetary Fund showed only light gold buying amongst central banks in June, with Turkey's reserves falling for the first time in a year, down 0.8% to 441.5 tonnes.

“The flows in the central banks are pretty small now, the big shifts are gone,” Bloomberg quotes economist Justin Smirk at Westpac Banking in Sydney.

"Central bank buying might give us a little bit of a floor, but they’re just soaking up some of what the ETFs are selling. You’re not going to see central banks coming in to push the price up."

The world's largest exchange-traded gold trust fund, the SPDR (ticker: GLD) yesterday shed another 2 tonnes on Thursday, taking its bullion – held to back shares in the trust – down  to 927 tonnes, the lowest level since Feb. 2009.

Lower prices mean supplies of scrap gold from existing jewelry and investment owners may slump by three-quarters to 400 tonnes or below, according to 2013 forecasts earlier this week.

"The pawn-broking industry is facing a collapse in the price of gold," reports NPR's Planet Money, reducing margins on gold items pledged by borrowers.

On the mining supply side, meantime, world No.3 Goldcorp joined No.2 Newmont in announcing sharp write-downs on the value of its assets, thanks to the 20% drop in world gold prices so far in 2013.

Adding $2 billion and $1.8bn respectively to the gold mining majors' recent $9bn in writedowns, Goldcorp and Newmont Mining have both dropped more than 40% already on the stock market since gold began falling from $1800 per ounce last fall.

Buy gold at the lowest prices in the safest vaults today...

Adrian Ash runs the research desk at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern and FT Deutschland; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News, RSS links are shown there.

http://goldnews.bullionvault.com/gold-bullion-072620131

The game change in gold

Ralf Hettler | E+ | Getty Images

How quickly things change. Gold's critical $1,300 level, which once served as resistance, is now support.

Although it matched the previous session's $1,348.70 high, gold failed to make a new high and stalled out against our $1,351.40 resistance level very early in Wednesday's session. Thursday is August option expiration, and as clocks tick, we are seeing a similar pattern to one we saw in April. Back then, when gold broke down through $1,500 and reached down to $1,323 before bouncing, many put option sellers found themselves with serious losses, and they were forced to either cover puts or buy futures to close the option position. This caused a quick bounce, and strong price action in gold.

We believe we have seen a lot of short-covering in the last week, and a bounce that may have come a lot sooner if not for Federal Reserve Chairman Ben Bernanke's road show over the last two weeks. Yes, gold closed back above our $1,323-to-$1,326.50 band this week, neutralizing the bear market. We have also defined the new range as $1,300 to $1,370. On Wednesday, however, the $1,323 to $1,326.50 band provided little support after its second test in two days; $1,338 provided support through the night, but became resistance on Wednesday morning before gold fell further.

As we always say, when major resistance is broken, it becomes support (and vice versa). Right now, $1,323 to $1,326.5 is resistance.

With a low of $1,308.40 in the early Thursday session, traders will be closely watching the close. Failure to maintain $1,300 will prove the recent rally false.

—Rich Ilczyszyn is founder and CEO of iiTrader. Follow him on Twitter @iiTrader.

http://www.cnbc.com/id/100913481

Why Gold Prices Are Rising Now

After watching some drastic one-day plunges this year for the yellow metal, investors are wondering why gold prices are rising now– could this be the start of a healthy, prolonged rebound?

On Monday, gold enjoyed its biggest one-day jump in more than a year. It hit a four-week high as gold finally broke through the $1,300 an ounce technical resistance level and finished above $1,335 an ounce.

Short-covering by technically-oriented traders and the perception that the Fed will continue QE for the foreseeable future are the short-term answers as to why gold had such a strong day, and why prices are rising now.

But there are solid fundamental reasons as to why gold should and will keep recovering in price in the months ahead.

One key reason was pointed out several times by Money Morning Global Resources Specialist Peter Krauth.

I’m talking about the growing divergence between the paper (futures, etc.) gold market and the actual market for physical gold – “market dislocation.”

Market Dislocation and Gold Prices

You see, since gold is a quasi-currency, it is rarely in backwardation. That is, the near-term contract for gold rarely trades at a price above the longer term contracts.

But in recent days that has occurred for the first time since the 2008 financial crisis.

By TONY DALTORIO, Contributing Writer, Money Morning

July 24, 2013

This means the physical demand for gold is far outweighing the physical supply of gold.

Economist Guillermo Barba explained to Reuters, “More and more people want their gold today, at a higher price, no matter that they can buy a future much cheaper.”

Just ask JPMorgan Chase (NYSE: JPM) about that.

ZeroHedgereported last week that 90,311 ounces of the bank's eligible gold was withdrawn in one day. This translates to 66% of the bank's non-registered gold, leaving it with only 46,000 ounces of such gold in its vaults. 

That’s quite a drop from the more than three million ounces held in JPMorgan's vault just two years ago.

Another indication of dislocation in the gold market is the rising lease rate for gold.

The lease rate is the amount it costs to borrow actual physical gold. The higher the rate, the tighter the market is – that is, the less physical gold supply there is in the marketplace.

Recently the one-month gold lease rate jumped to 0.3%, the highest level since January 2009. The lease rate is up from just 0.1% a few weeks ago and a negative 0.2% last September.

This rapid climb in the lease rate (still at 0.27%) is another reflection of dwindling gold supplies in the face of resilient demand for physical gold.

China’s Bullish Moves for Gold Prices

Add to the growing dislocations in the paper gold market the massive gold buying by investors in Asia – particularly in China – and you have a recipe for higher gold prices.

Money Morning Chief Investment Strategist Keith Fitz-Gerald, in a recent gold prices article, showed how Chinese demand for the precious metal is by itself nearly equal to total worldwide gold mine production.

And so far this year, physical deliveries of gold (1,098 metric tons) on the Shanghai Gold Exchange account for 50% of global gold production.

In addition, China's net imports of gold from Hong Kong continue to surge. In May – the last month reported – net imports surged 40% from the month earlier to 106 metric tons.

Let's not forget either that China approved the first two gold-backed exchange-traded products last month. The two products just had their subscription period close on July 12.

This should add even more to the country's already red-hot demand for gold, and drive gold prices higher.

The Great Gold Crash of 2013 was triggered by two very conspicuous trades – and the aftermath has led to a historical shift in gold pricing. Just read thisfascinating analysis of the major implications those trades had on the future of gold prices.

http://moneymorning.com/2013/07/24/why-gold-prices-are-rising-now/

Why Detroit is good for gold: Ron Paul

The Detroit bankruptcy has been called an American tragedy, and one of the most heart-wrenching financial stories of our time. But according to Ron Paul, America's biggest-ever municipal bankruptcy could actually give gold bulls something to cheer about.

For Paul, the Detroit bankruptcy is the first of many municipal bankruptcies to come, and could even foretell what will happen to the United States as a whole.

"Long term, you can expect governments not to change," said Paul, who predicts that the U.S. will print more and more money as it continues to take on debt.

"We're going to see more Detroits, and eventually the government of the United States will be somewhat similar to Detroit, because people will give up their confidence in us, they'll give up confidence in the dollar, and eventually they'll give up confidence in our military. And then you'll see some real, real changes in this system, which has been built on a fiat dollar for the last 40 years," the former U.S. representative said on Tuesday's "Futures Now."

Why does this matter to gold? Because Paul expects to see gold skyrocket as the dollar crumbles. As he said on June 16: "As long as we have excessive spending and excessive computerized money, you're going to see gold go up. And eventually, if we're not careful, it could go to infinity, because the dollar will collapse totally."

The point is that as each dollar loses value, it takes more of those dollars to buy an ounce of gold, so the dollar value of gold rises. If people stopped accepting dollars, then no number of dollars could purchase an ounce a gold, making the gold price "infinity."

(Read more: Ron Paul: Gold could go to 'infinity')

Ron Paul

And for Paul, the Detroit bankruptcy could be the beginning of this dollar collapse.

"There's going to be more cities [that declare bankruptcy], and there will be a limit," Paul said. "If 10 cities declare [bankruptcy] tomorrow and the Feds say 'Well, we've got to bail them out,' that could do great damage to the dollar."

After all, "There's a limit to what the markets will tolerate," Paul warns. "I'm surprised that the markets have been rather tolerant." But "there's an end point, and nobody knows when that'll come, but I suspect we're getting closer and closer to it every day."

Perversely, gold owners might hope this "end point" comes sooner rather than later—at least when they have their portfolios in mind. And for that reason, they might see the Detroit bankruptcy as very good news indeed.

—By CNBC's Alex Rosenberg. Follow him on Twitter: @CNBCAlex.
http://www.cnbc.com/id/100907995

China Working Quietly To Buy Up Gold

 (Photo credit: Wikipedia)

The Fed’s preferred measures of inflation are so low they’re in the Fed’s panic zone. What gives?

“There’s an ideal playbook, and it would look something like this,” James Rickards, author of the New York Times bestseller Currency Wars,explained. “You’d have higher inflation than we have today, but not super high. It might be in the 3-4% range. GDP of maybe 5%, which is pretty high, and then that would bring down the debt-to-GDP ratio so the United States doesn’t look like Greece.”

The result would be a cheaper dollar, which would help exports and get the inflation the Fed wants. “And you’d have negative real interest rates,” he added, “which is to say inflation would be higher than the nominal rate — so let’s say inflation 3.5% and a nominal rate of maybe 2.5%, you’d have 1% negative rates.”

None of that is happening. There’s no inflation. In fact, the Fed is talking about deflation. Instead of a weaker dollar, we have a stronger one. Interest rates are rising, but without any inflation, we’re getting positive real rates.

Rickards thinks the Fed is way off the mark about the economy’s health. Bernanke thinks the economy is in much better shape than it really is. “You look at the Fed’s forecasts for the last four years, they were wrong every time, and they were wrong by a lot, meaning why should we believe the forecast now? They’re not going to taper.”

After September, Bernanke will be a lame duck. That means his last Board of Governors meeting will be in January. “We can’t be certain of this,” Rickards qualified, “but it seems very unlikely that he’s going to do anything dramatic on his way out the door. If Bernanke actually does taper in September, which I don’t expect, it’s going to be a shock to the markets, and we’re going to see more of a drawdown in gold, a drawdown in stocks.”

From the Fed, we pivoted to gold. The People’s Bank of China last revealed its total gold holdings in April 2009 — 1,054 tonnes — and they could use it as a weapon in the currency wars.

“If you’re China, the last thing you want to do is be transparent about your gold purchases, because it will drive the price up,” says Rickards.  He compared China’s strategy to a game of Texas hold ’em. “You want a big pile of chips. The U.S. has a big pile of chips, Europe has a big pile of chips. The U.S. has 8,000 tonnes of gold, 17 members of the euro system have 10,000 tonnes. China at 1,000 tonnes is not a player, but at 5,000 tonnes, they are a player.”

According to his best information, China is there already. To be clear, no one really knows, except for maybe a member of the Communist Party, says Jim. “But I have spoken to a number of sources in Asia,” he says. “I’ve spoken to a number of people who are very close to the physical market, I’ve done my own investigations. Every time I have an estimate and try to verify it, what I get back is that I’m wrong on the low side.”

So he expects that come April 2014, China will announce that it owns 5,000 tonnes of gold.

“That should be an earthquake because even the gold deniers, the gold doubters, are going to have to sit up and take notice. Either the Chinese are dopes, which they’re not, or people will start to get gold, which I think they will.”

If these scenarios played out, gold would go a lot higher. Jim told us it could go up in a very short span of time, say, 90 days or at the most six months.

“The world of $4,000 gold is the world of $400 oil, $100 silver, higher prices for copper, corn, wheat and everything else,” he continued. “In other words, it’s a world of very high inflation in which the value of your retirement funds and your annuities have been wiped out.

In that case, there will be winners and losers. As Mr. Rickards explains, the winners will include those who hold gold. “That’s going to be a very small minority. It’s a small minority today. It might get a little bit larger, but that’s not most of the population.”

The losers will be everyone else. “So,” Jim explains, “you’re going to have this resentment, this political resentment, where the vast majority of the people who just sort of took it on the chin are going to be looking at a small number of people who protected themselves, and they’re going to say that’s not fair. And we’ve seen this before. Congress has a way of dealing with it, which is a windfall profits tax.”

He was quick to add that laws like that don’t happen overnight — there’s a legislative process that bogs it down. “Secondly,” he adds, “you should be able to see it coming and maybe pivot out.”

Regards,

Addison Wiggin
for the Daily Reckoning

http://www.forbes.com/sites/greatspeculations/2013/07/22/china-working-quietly-to-buy-up-gold/2/

Rich are changing money into gold

22 JULY 2013

WEALTHY Irish people are increasingly turning their money into gold amid a lack of trust in the banks, the owners of a new private high-security vault have claimed.

Sentinel Vaults is due to open in September on Dublin's Waterloo Road, providing safety deposit boxes for householders and businesspeople.

The company said evidence suggested more people were converting cash to gold.

A spokeswoman said: "Gold has always been seen as a safe hedge against inflation."

http://www.independent.ie/business/irish/rich-are-changing-money-into-gold-29437447.html

Gold Weekly Fundamental Analysis July 22-26, 2013 Forecast

Weekly Analysis 

Gold closed the week at 1294.75 booking a marginal gain – its second consecutive weekly gain. The rally has made some shorts scramble to cover their positions but there remains a very high risk of a significant short squeeze that will propel gold prices higher in the coming weeks. This is due to still robust demand for physical gold in much of the world including India and China. Detroit’s bankruptcy is a harbinger of things to come as large states, such as California and Illinois, are also very vulnerable to bankruptcy.

Continuing robust physical demand from central banks and especially from wealth buyers in the EU, U.S., the Middle East and Asia – especially China helped prices gain this week.

Gold’s advance came as the U.S. dollar pulled back from Thursday’s gains, with the dollar sitting at 82.606 Friday, down from 82.783 late the previous day. Gold futures, like those of many commodities, are usually denominated in dollars, a fall in the U.S. unit makes gold less expensive to holders of other currencies, encouraging buying.

Billionaire's Jewelry Retailer Sees Revenue Surge On China's Gold Fever

Cheng Yu-tung, Honorary Chairman of  Chow Tai Fook Jewellery Co. (Image credit: AFP/Getty Images via @daylife)

The world’s largest jewelry retailer has seen it shares rise nearly 17% over the past week, after the company revealed a “remarkable” jump in sales that may be an early sign of a recovery.

Hong Kong-listed Chow Tai Fook said revenue surged 63% during the first quarter as the falling price of gold sent many Chinese consumers rushing into its jewelry shops to stock up on the precious metal. Over half of the retailer’s sales come from gold products sold in its 1,836 stores in Hong Kong, China and Macau.

Nevertheless, Chow Tai Fook’s stock is still down 24% so far this year, amid falling margins for jewelry shops after the sharp plunge in gold prices beginning in April combined with tighter spending by Chinese consumers on luxury goods.

Chow Tai Fook is controlled by Hong Kong’s fourth richest man, Cheng Yu-tung. The jewelry business is part of the larger conglomerate New World Development with interests in property, finance, infrastructure, hotels, department stores and telecommunications.

Cheng got his start in the jewelry industry in the 1940s when he landed a job at a gold shop in Macau named Chow Tai Fook. He married the store proprietor’s daughter and helped to expand the retailer to Hong Kong and beyond. In the 1970s, Cheng expanded the business into real estate. After opening the first China-based store in Beijing in 1998, the jewelry chain rode the tide of the nation’s booming economy ever since.

Cheng raised $2 billion by listing Chow Tai Fook in Hong Kong in late 2011, advancing his net worth significantly. Cheng’s wealth was valued at $16 billion on the World’s Billionaires List in March. He retired as chairman of New World last year.

Chinese consumers have traditionally viewed gold as a symbol of prestige within their culture. Gold jewelry was often worn by royal families in the past and is still seen as an auspicious gift for special events like births and weddings. In recent years, gold coins and bullion has also been used by investors as a hedge against soaring inflation.

http://www.forbes.com/sites/yifanzhu/2013/07/16/billionaires-jewelry-retailer-sees-revenue-surge-on-chinas-gold-fever/

Gold: Time to buy now?

NEW YORK (CNNMoney)

Gold has been a losing investment for months.

But in the last six days, the precious metal seems to have regained some of its luster, rising 5.8%. Last week, gold recorded its biggest weekly percentage gain since 2011, and it came after four weeks in a row of losses.

Some believe this could be the beginning of a new momentum.

"We're in process of finding a bottom," said Jeff Nichols, managing director of American Precious Metals Advisors.

Since April, investors have abandoned gold in favor of the stock market, where they have chased higher returns.

The price of gold is off sharply from the record highs of 2011, when it touched $1,900 an ounce. Despite its gains this past week, gold is still down about 24% since the beginning of the year. It's currently changing hands in the futures market at $1,284 an ounce.

Gold has been pummeled because of worries over the Federal Reserve scaling back its economic stimulus policies. Such a move takes away gold's value as a hedge against inflation. In the years after the financial crisis and recession, investors had rushed to buy gold because they bet that the Fed's extensive bond buying would undermine the U.S. dollar and drive up consumer prices.

Another big reason why gold has been depressed lately is that economic growth is slowing in emerging markets, including China and India, both of which are large buyers of physical gold.

Still, some veteran gold watchers say the sell-off presents an opportunity. Longer term investors might want to bulk up on the metal because there are no signs that appetite for gold from consumers in Asia has waned. At the same time, supplies from gold mines remains tight.

Nichols from American Precious Metals Advisors believes that gold prices over the next three to five years could surpass the 2011 highs.

He stressed, however, that gold buyers need to be patient. "It's not clear we will have a quick turnaround," he said.

Related: Is gold losing its safe haven appeal?

 

Gold buyers sell as quickly as they buy

Gold got a boost last week after Fed chairman Ben Bernanke said U.S. monetary policy will remain "highly accommodative" for the foreseeable future.

The remark lowered expectations that the Fed will begin to cut back on its $85 billion-per-month bond-buying program this year.

"I think the Fed is being overly optimistic and won't get around to tapering this year," said Chuck Butler, president of EverBank World Markets. "If that's the case, then I think gold will really start to rebound."

Butler said gold prices could climb back to $1,450 an ounce if the Fed delays tapering. But he cautioned that the market has been extremely volatile and that further declines cannot be ruled out.

He noted that the cost to bet against gold, by shorting, has increased recently. That suggests that speculators are becoming less convinced that gold is headed lower.

Gold prices in the futures market are mainly driven by short-term traders, such as hedge funds, that rarely take possession of physical gold, said Steven Feldman, chief executive of Gold Bullion International.

But he said demand for physical gold, including bars and coins, has been strong in China and other Asian markets.

Related: Gold bugs regain some swagger

Feldman said the fundamentals of supply and demand should push gold higher over the long term.

Despite an expected slowdown in China, he said demand for physical gold, including jewelry, should remain robust in the world's second largest economy. In addition, he said gold should continue to benefit as global central banks look to diversify their reserves.

Meanwhile, gold supplies have tightened.

Feldman said miners are "under siege" in some parts of the world as "resource nationalism" is on the rise.

"I'm very bullish long term based on the fundamentals," he said. "Supply isn't going to go up, and demand is strong as China continues to grow, central banks diversify and investors warm up." 

http://money.cnn.com/2013/07/16/investing/gold-prices-buy/

Dissector: Gold prices testing long-term supports

THE HINDUMedium-term resistance levels for domestic gold prices are at Rs 27,786, Rs 29,600. — Ch. Vijaya Bhaskar

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July 13, 2013:  

This year will go down in history as the year in which gold prices crashed 23 per cent in just three months. Much has already been written about the causes — investment funds exiting from gold investments following the long-drawn sideways movement in gold prices over the last two years.

Demand from jewellery buyers made international gold prices halt around $1,320 for a couple of months. But another bout of selling has sent the yellow metal lower to $1,179 in June. So how much further will this decline go and where can investors get respite?

LONG-TERM VIEW

The movement of gold prices between $1,500 and $2,000 since August 2011 appears to be a long-drawn distribution phase that ended when the $1,500 level was breached emphatically in May this year. In our previous review of gold, we had held that we will have a positive long-term view only as long as it traded above the $1,500-mark.

We now believe that a long-term correction has begun. This can be a deep and short-lived one or a long-drawn shallow correction. The coming months should indicate how the corrective phase is going to evolve.

The structural up-move in gold began at the 2001 low at $256. If we take plain Fibonacci retracement targets of this move, we get the next support band between $1,090 and $1,164. The metal is halting around this area. Sharp move below $1,090 will give the next long-term support at $890.

If we project the third wave down from the $1,923 peak, we get the targets of $1,398 and then $1,150. Convergence of targets around $1,150 makes it a likely halt, at least in the medium term.

The long-term view will turn positive only on strong close above $1,550.

MEDIUM TERM VIEW

So how is the movement of gold over the next few months going to be? Gold has critical support around $1,150. Prices hit the low of $1,179 in the last week of June and are trying to hold above this level now.

Immediate resistances are at $1,300 and $1,374. Inability to move beyond these levels will mean that prices will decline once again towards the $1,150 level.

Move above $1,374 will take the metal towards the critical resistance at $1,500. This level will be hard to overcome for a while.

MCX FUTURES

The price of gold in India is linked to international prices. So the trend broadly follows the price in international market. But the movement of the Indian rupee influences the prices too causing a difference in domestic and international price movement.

Gold near-term contracts of 10 gram traded on MCX is currently hovering below Rs 27,000. Key long term support for this contract is around Rs 22,000. There is interim support around Rs 25,000, where it recently formed a low.

Medium-term resistances for domestic prices are at Rs 27,786 and then Rs 29,600. Reversal from these levels will mean that the pressure will continue on gold prices in the medium-term. Long-term resistance is around Rs 32,000.

lokeshwarri.sk@thehindu.co.in

http://www.thehindubusinessline.com/features/investment-world/market-strategy/dissector-gold-prices-testing-longterm-supports/article4912483.ece