Weekly View on Bullion

Bullion beats all, Gold crosses $1000 mark

Gold hit the magical number of “$1,000” in Friday trading session at the COMEX and immediately registered newswire flashes across the various services. This is only the second time in its history that gold has shot up above the $1,000 level. Generally short-term oriented traders like to book profits when such things occur so it will not be unexpected to see a bit of a pullback from here.

If the market does set back, I do not expect any subsequent price retracement to be very deep this time around. Things have changed since last March 2008 (a year ago), the last time gold was over $1,000. The price rise this time has been measured, it has been steady, and most importantly, it has not been driven by a rush of hot fund money into the market. The open interest is 60% of what it was the last time the price of gold peaked – while there is a sizeable long position in the COMEX gold market, it is well off the levels it reached at that last peak. Also, the reported holdings in the gold ETF, GLD, show that investment money is steadily flowing into this sector. The last time gold was over $1,000 back in March, the reported gold holdings were only 663 tons. As of yesterday, holdings were reported at 1029 tons. Obviously a much larger share of the public is moving into gold. I am hard-pressed to see a reason why all this money would suddenly decide to abandon gold unless of course an economic miracle recovery was to immediately commence.

Panic selling in the equities market pushed April gold above the July high and to the highest price level since March of last year. Ongoing concerns over rising risk to European banks due to their high exposure to eastern European economies added to the safe haven buying in gold. Strong investment buying interest continued to flow to the gold market on rumors that the government may consider nationalizing some banks. A sharp reversal in the dollar during the selling may have provided some additional support. Gold trimmed gains on profit taking after comments by the White House supporting a private US banking system triggered a sharp bounce in equities

The euro reversed an early decline against the dollar on Friday, climbing slightly after the German government's economic stimulus plan cleared its final legislative hurdle and the head of the European Central Bank said money markets had seen improvements. The euro also got support from ECB President Jean-Claude Trichet, who told reporters at the European American Press Club in Paris that money market conditions had "improved tremendously" given the bank's recent actions and "there is no weak link in the euro area," a nod to concern about the fiscal health of Ireland, Portugal, Italy and Spain. The financial situation remains extremely fragile and gold seems to be the only safe haven.

Technical View

COMEX Gold has support at $950 and $980 and resistance at $1010 and $1035.
Buy MCX Gold (Apr) on dips around 15650-15700 SL 15400 Tgt 16000 and 16200

COMEX Silver has support at $13.9 and resistance at $15
Buy MCX Silver (Mar) on dips around 22900-23000 SL 22500 Tgt 24000

Weekly View on Commodity

Bullion

The Labor Department reported the U.S. unemployment rate hit 7.6% in January, the highest since 1982. Economists had expected an unemployment rate of 7.5%. The Federal Reserve has cut its key interest rate to near zero in order to boost the economy, and the Bank of England lowered its benchmark rate to a record low of 1% on Thursday. Gold continues to benefit from destructive monetary policies which are being pursued globally.

Gold holdings in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, gained to a record for the 11th time in more than two weeks, according to figures on the company's Web site. The fund held 867.19 metric tons of bullion as of yesterday, compared with 8.09 tons when it began Nov. 18, 2004.

Hopes rose that the U.S. will pass a stimulus plan quickly after the Labor Department reported Nonfarm payrolls shed 598,000 jobs, the largest amount since 1974. The U.S. stock market rallied Friday amid hopes bad economic news is already priced in, and that the stimulus plan will boost the economy by the end of the year. The U.S. Senate is slated to vote early next week on an economic stimulus package totaling at least $780 billion that President Barack Obama said is needed to prevent the economy from sinking into a deeper recession.

Dubai gold jewellery sales have reportedly crashed in January as high bullion prices and the economic crisis hit tourism arrivals despite heavy promotional activities during the annual Dubai Shopping Festival (DSF) taking place from 15 January-15 February. Sales have crashed by over 60% in January.

COMEX Gold has support at $900 and resistance at $930 and $950.
Buy MCX Gold (Apr) above 14400 SL 14100 Tgt 14650
Sell MCX Gold (Apr) below 14100 SL 14380 Tgt13800

COMEX Silver has support at $12.7 and resistance at $13.8
Buy MCX Silver (Mar) above 20550 SL 20000 Tgt 22200
Sell MCX Silver (Mar) below 20000 SL 20500 Tgt 19500 and 19200

Energy

Downside continues in crude oil with monotonous choppy trading sessions through out the week. Despite poor economic data prices manage to steady above $40 due to significant production cut by OPEC on agreed quota.
The unemployment rate rose to 7.60% at 18 years high in U.S. The jobless number is also lowest since 34 years signaling that the recession in the world’s biggest energy- consuming country is deepening. The OPEC is implementing pledged production cuts and is committed to restoring balance to the market as the spreading recession reduces demand for oil. The Organization of Petroleum Exporting Countries is going to keep oil shipments steady at a five-year low in the next four weeks.
Natural Gas prices continue to trade higher despite lower crude oil prices. Natural Gas prices rose on lower temperature and on speculation that government efforts to boost the economy gas will increase fuel use. Some refiners switch to summer grade product from winter grade expecting demand in summer season as the future contract is trading lower as compare to previous year April contract.
The president Obama’s stimulus package will definitely help to boost the prices but if we look at the world economic condition, the picture is more darken. The recession is getting deepen and more and more countries are coming under effect. The current going “contago” is also a major worry for oil prices as prices are trading around $5 above the current contract. Support for crude oil lies near $37 and $35.

Sell MCX Crude Oil (Feb) below 1930 SL 2030 TGT 1830 & 1810

Weekly Commentary on Bullion

Investment Demand Stampedes
The recent rise in risk aversion has triggered strong inflows into the gold ETFs and a simultaneous increase in demand for gold coins and small investment bars. On December 17th 2008 the combined gold holdings of the World Gold Council gold Exchange Traded Funds and Barclays Gold Trust stood at 985.59 tonnes. By the 16th January 2009 this had risen to 1009.92. By 30th January early in London time they had grown to 1079.83 a growth of almost 70 tonnes in two weeks. To give one perspective, the Central Bank Gold Agreement signatories [European central banks only] sold only 3.5 tonnes in the last two weeks. There are many other gold bullion-holding funds in the developed world from Canada to Switzerland that are not included in this total. If they were the total would be approaching 1200+ tonnes. Clearly we are seeing a stampede of institutional fund management into gold at present.

Central Banks in the Gold Market
The Central Banks of the world are the largest holders of gold in themselves, despite that unquantifiable fact that around 20,000 tonnes of gold are held privately across the Indian sub-continent. So as to give us a sense of proportion on the top cats in the neighborhood, here are the current gold holdings of the top 9 central banks in the world. If we are to take the entire privately held gold Exchange Traded Fund shares they would represent more gold than held by the Swiss National Bank, Switzerland’s central bank. Japan was overtaken a long time ago. Take the world Council gold Exchange Traded Funds and the Gold Trust totals and at the present level of demand the next fortnight will see them overtake Switzerland alone.

Bullion is not in any correlation with Crude Oil and Dollar from last one month. Euro Dollar fell 1.25% during the week and Crude Oil also fell 10% but Gold gained 3% during the week. Silver also followed Gold by rising 5%. This uptrend is likely to continue due to fund buying.

COMEX Gold has support at $900 and resistance at $950 and $990.
Buy MCX Gold (Apr) on dips ~14100 SL 13900 Tgt 14500

COMEX Silver has support at $12 and resistance at $13
Buy MCX Silver (Mar) on dips ~19500 SL 18900 Tgt 20400