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