MUMBAI: It’s no surprise that as the economic packages across the world fail to give any boost to financial markets, gold’s status as a safe
Source: Bloomberg
haven strengthens.
The yellow metal which experienced liquidation pressure ahead of US president’s announcement of second stimulus package, has regained its momentum.
While the precious metal is making new highs in various currencies across the world, its price in US$ denomination is capped by a stronger dollar. Experts say it’s time the precious metal could breach an important resistance of $975 an ounce and move to $1,000.
According to Praveen Singh, research analyst at Sharekhan Commodities, even as all central banks announce new economics packages, the market sentiment has not changed for asset classes like equities and realty. Gold, in this backdrop, will continue to prove its safe haven status as investors prefer it over any other asset.
In the last few days, gold prices have made a new high in currencies like the Euro and Indian Rupee, but it has failed to do so in US $ as well as Japanese Yen.
“However, this merely shows that a run towards cash and carry-trade unwinding are supporting these respective currencies. In $ terms, prices are expected to breach through $975 an ounce for a rally towards $1000 while $932 seems to be a strong support,” Singh said.
His views were resonated by Harish Gallipeli, research head at Karvy Comtrade, who feels that the yellow metal has decoupled from its negative correlation with $ and positive correlation with currencies like Euro. “Investment demand is playing a crucial role for the latest rally as gold is expected to outperform currencies as well as equities,” he added.
Dollar index, a measure of the greenback’s strength against a basket of currencies like Euro, Sterling and Yen, gained more than 3% in last six trading sessions.
Meanwhile, the world's largest gold backed exchange-traded fund, SPDR Gold Trust, showed record high holdings of 985.86 tonnes as of Feb. 13, up 15.29 tonnes or 1.6 percent from the previous day.
Elsewhere, Russia's central bank is said to have increased gold's share in reserves, and plans to continue this trend in 2009.
