Yellow metal hits new high
Analysts remain bullish on gold as the yellow metal scaled a new peak yesterday but maintain that the current rally is expected to stall around $1,160 a troy ounce and a sell-off in the short-term cannot be ruled out.
Spot gold was trading at $1130/oz in London, at 1pm UAE time yesterday, after hitting an intra-day high of $1,132.95.
Its continued rise since the beginning of the year has been linked to the weak dollar and growing interest by private and institutional investors. The gold price, up around 35 per cent since the beginning of 2009, broke through the $1100-mark for the first time last Monday, with yesterday's peak marking yet another lifetime high for the metal.
"Gold [price] has fulfilled the first of our two primary targets at $1,100, with the second highlighted at $1,325," said Darran Grabham, an analyst with South Africa's Standard Bank.
"The bull trend has advanced strongly in recent weeks, and is heading towards the $1,160 resistance level. This is not a prime barrier, but is expected to temporarily halt the rally – interim resistance may be encountered around $1,135," he said. If a direct break above $1,160 occurs, the rally can continue to $1,182. There are currently no additional short-term targets available beyond $1,182.
"Initial support is at $1,120, and $1,096 is regarded as a more important near-term level, as a break lower would indicate that a minor top has formed," Grabham said.
Commodity prices this year have been buoyant on global growth hopes but also renewed weakness in the dollar. The greenback enjoyed a sudden bounce last Thursday, but this respite did not last long. It again fell back yesterday, with the greenback falling to $1.50 against the euro.
In addition, it was close to parity with the Swiss franc.
The resumption of dollar weakness encouraged investors to add to bets in the carry trade, whereby the US unit is apparently sold to purchase riskier assets such as stocks and commodities.
At the same time, a move into safe haven commodities – primarily gold – has pushed gold prices high but these levels might not be sustainable. "An aggressive move higher [which we are presently experiencing] cannot be sustained, and we advise caution around $1,160, with gold susceptible to a corrective phase. A retracement through $1,096 would be expected to initiate a sell-off towards $1,070, with extended weakness forecast to remain above $1,026."
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