Gold price spiral to continue this week

Prices may near or even breach the record high of $1,266.5

Gold prices may make a run toward $1,260 per ounce this week, nearing or even breaching the record high of $1,266.5 scaled on June 21, according the Dubai Gold and Commodities Exchange.

Investor demand for gold in the face of weaker and worrisome U.S. economic data is likely to keep investors focused on gold this week, along with the roll in New York market silver positions, the exchange said in its weekly commodities review.

Demand for gold is expected to pick up in India and the Gulf ahead of the festival season, although high gold prices may temper this buying over the next few weeks.

Lower than expected July home sales and durable goods orders point toward a slowdown in U.S. economic activity. US second quarter GDP was revised lower on August 27 to 1.6 per cent from the previous estimate of 2.4 per cent. The revision lower was less than what the market expected, however, which ranged from 1.1 per cent to 1.4 per cent. US economic growth is expected to remain soft for the remainder of 2010.

On the flip side, prices could spike below $1,220, but any move down to $1,210 or other levels probably would trigger fresh buying.  Similarly,  silver prices are expected to move between $18.60 and $20 this week.

“Negative economic data supporting and reinforcing this weakness are expected to continue being released, which should help keep investors interested in gold and prevent any significant decline in gold prices in the near future,” the review said.

Investor demand and the roll of September positions forward in the New York market are seen as supporting prices for silver following last week’s rise. Strength in gold prices is likely to provide support to silver prices as well. Silver is considered by many as a safe haven investment similar to gold. Investors in silver exchange traded funds (ETFs) added around 2.3 million ounces of silver to holdings during the first four days of last week on DGCX. These additions took combined silver ETF holdings to 493.3 million ounces, a record high. Silver ETF investors have made net additions of 4.8 million ounces of silver to total ETF holdings, between  August 1 and 26.
Demand for silver jewelry is expected to increase in India ahead of the festival season. Demand for silver jewelry also is likely to benefit from its relative affordability compared with more pricey gold jewellery.

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