Gold may surge on rising geopolitical crisis

Gold may rise in the coming week on its appeal as the best bet in the times of rising geo-political crisis. The Israel-Palestine and the India-Pakistan conflicts are likely to flare up in the coming days.
Analysts believe that the yellow metal may perk up to $926 per oz within a fortnight as tension in South Asia intensified with Pelestinian militants mounting the biggest ever rocket attack in six months on southern Israel. Additionally, investors may be interested in booking profit and gold is likely to prove the only option left that has offered returns over 12-13 per cent. Other avenues including equity, currency, real estates etc have offered negative returns this year.
Traders are enthusiastic to extend their short positions to long ones and keen on fresh fund infusion. Therefore, the safe-haven demand of precious metals will increase, said Ashok Mittal, an analyst with Karvi Commodity Broking.
This is likely to translate into over Rs 14,000 per 10 gm for the yellow metal as the developing crisis between India and Pakistan may suppress the rupee against the dollar. Analysts forecast the rupee to touch the 50-mark against the dollar this week. According to reports, Pakistani troops are being diverted from tribal areas near Afghanistan to its border with India.
Even if gold prices remain rangebound globally, it would become costlier for Indian consumers as the rupee is bound to depreciate under the current political face-off, said Navin Mathur, head (commodities), Angel Broking.
Moreover, festive buying on the occasion of Makar Sankranti on January 14 may push precious metal prices. Demand is also likely to pick up ahead of the wedding season. India is the world’s biggest buyer of gold, accounting for more than 20 per cent of purchases. In 2008, the country imported more than 800 tonnes of gold against 754 tonnes in 2007.
Gold performed exceptionally well during this year with prices starting on a positive note and touching an all-time high of $1,032.80/oz in March because of a weak dollar and rising oil prices. Since then, gold has tumbled more than 33 per cent to hit a low of $681/oz in October as recovery in the greenback, fall in its physical demand and collapse in oil prices eased demand for gold.
A pick-up in physical demand and additional safe-haven buying will support prices, but the need to liquidate positions to meet margin calls elsewhere will cap gold’s upside potential, said Mathur. In the spot Mumbai market, standard gold surged during the week to Rs 13,440 from Rs 12,810 per 10 gm. Pure gold also perked up to Rs 13,500 from Rs 12,870 during the week.
On the MCX, Gold April 09 contract went up by 1.17 per cent to Rs 13,111. Gold M January 09 contract by 1.17 per cent at Rs 13,068. Gold guinea December 08 contract went up by 0.49 per cent to Rs 10,209 per 8 gm.

Global Cues- gold

It was a splendid recovery in equities across the globe and the investor trepidation level too came down; as was indicated by the CBOE VIX’s decline to 59.8 from the peak of 89 recorded in the previous week. However, if we consider the movement over the last three weeks, most indices are moving sideways in a range resulting in wide week-to-week swings. The DJIA too is moving sideways and has closed near the upper boundary of this range. A close beyond 10400 is needed to signal that a sustainable recovery is underway in this index.
CRB index, that maps the commodity price movement, is recovering from the key support at 356. Though the recovery is not strong enough, the fact that the index is attempting to stabilize is a positive. Comex gold declined below the support at $730 to an intra week trough at $680. The next long-term support for the precious metal is at $650 and the third leg of the decline from March peak has the target at $630. A trough in the area between $630 and $650 is possible on a close below $700.