Weekly View on Bullion

FUNDAMENTAL COMMENTS AND VIEW

The bullion market showed some wild fluctuations during the week. Clearly seeing the narrowest US Trade Balance in six years served to undermine some flight to quality bulls. Gold was battling profit taking by the longs, which might have been somewhat concerned about potential developments from the weekend G20 meeting. With price action choppy the metal may have been underpinned by comments from China's Central Bank warning that the financial crisis may lift gold to record highs. Strong investor flows into gold-backed securities along with currency devaluation concerns may have been other factor providing price support to the metal.

The Swiss franc is one of the traditional safe haven assets, a place where worried investors park money to escape turmoil in other markets. Interest rates are usually low, but Switzerland's conservative fiscal policies and stable economy make it a place where investors attempt to ride out a storm. But the SNB clearly signalled yesterday that it is unwilling to tolerate any further CHF appreciation and acted to sell the currency in the FX markets.

This improves the relative appeal of gold, also a safe haven asset, as it weakens the argument for owning the Swiss franc as an appreciating currency during difficult times. It may also persuade some Swiss-based investors to add to their positions in gold now that the risk of CHF appreciation has been eliminated. Gold did move higher immediately after the SNB intervention yesterday and could benefit further from these moves as investors re-assess their options after this change

China’s Premier Wen Jiabao said he is "worried" about the country’s holdings of US Treasuries and wants assurances that the investment is safe. China is the biggest holder of US debt. Should China or some other significant buyer of US debt announce that they will no longer buy US debt unless denominated in a non-US dollar currency, gold is going to the moon.

The holdings of the SPDR Gold Trust advanced to another record high of 1042 tonnes. The fund now has world's sixth-largest stockpile of gold; overtaking that held by the Swiss National Bank

Technical View

Gold continues to resist any sustained decline, bouncing back quickly from any minor sell off COMEX Gold has support at $900 and $885 and resistance at $965 and $1000.
Buy MCX Gold (Apr) ) if prices sustain above 15450 SL 15200 Tgt 15800

COMEX Silver has support at $12.5 and resistance at $13.5 and $14
Buy MCX Silver (May) ) if prices sustain above 22400 SL 22000 Tgt 22800 and 23000