Gold AT 1317$

Gold continued its seemingly inexorable advance this week, reaching a new nominal record high of $1313.45 an ounce on Wednesday. Gold is heading for a tenth consecutive year of annual gains, the longest winning run since 1910. Bullion dealers Kitco International commented that 'most of what we have witnessed in the complex during the month has been clearly based on perceptions of an inevitable second chapter in Fed accommodation'. [1] Speculation surrounding possible additional stimulus measures in the US has increased following a barrage of weak economic data from the world's largest economy. Tuesday's readings of consumer confidence and manufacturing indices point to a stagnating US economic recovery, and the inflationary possibilities raised by a return to quantitative easing (QE) have driven investors towards the safe haven of gold. A poll of bankers, gold miners and analysts meeting at this year's London Bullion Market Association conference forecast that gold would reach $1450 an ounce during 2011, a 10.5% increase from current levels. The bullish mood surrounding gold has also been stoked up by news that central banks, led primarily by Russia and Asian governments, will become net buyers of the precious metal after two decades of net selling. Credit Suisse observed that 'it's quite possible that if there are any further upsets in either the currency markets or the rates markets ... we could get another leg higher and then we'd be looking at the next upside target at $1330'. [2] Holdings in the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, climbed by five tonnes on Tuesday, while buying in India rose on Wednesday as the strength of the rupee helped to shield local buyers in the world's largest democracy.

Commentary - Gold

Gold surged to an all-time high of $1,296.50 per troy ounce this week and has gained 1.3% on the week. The FOMC meeting on Tuesday served as a catalyst for higher gold prices as the precious metal came under heavy demand from investors seeking protection from a deteriorating US dollar. The Fed’s acknowledgment that inflation is ‘somewhat below’ levels deemed consistent with their mandate was taken as a hint that further Quantitative Easing (QE) was on the agenda. These comments saw the US dollar plunge this week. As confidence in paper based fiat currency begins to fade, demand for gold will increase as investors seek an asset that will retain its value during times of uncertainty. This demand will not only come from US investors fearing a drop in the dollar, but also Japanese investors worried about further currency intervention from the Bank of Japan, as well as UK investors who are seeing sterling decline amidst buoyant inflationary conditions. The additional uncertainty surrounding the US mid-term elections is likely to support gold as well in the short-term, while physical demand for the metal is traditionally high this time of year due to festive activities in India. It is difficult to see what may break gold’s remarkable momentum in the near term. The possibility of a prolonged equity market rally and greater clarity in the global economic recovery could see investors lock in gains in gold to seek higher yielding assets. In my view, however, this seems unlikely to happen in the current environment. Furthermore, gold is currently still well below the nominal high of $873 an ounce reached in 1980 - in inflation-adjusted terms this would equate to $2,312.94 today.

Gold Technical

As per our previous recommendation dated 7th September, 2010 of going Long on Spot Gold, of $ 1265 has been achieved.

As seen the price is almost trading at the long term resistances line (R) Hence, in our view profits on long positions (as per our previous recommendation) should be booked at the current levels and fresh long positions should be initiated on dips for (T) $ 1346 (life time high). Strong support is at $ 1248; until this support is breach buying is advisable.

A sustainable break of $ 1296 level from below could trigger a sharp rally targeting $ 1348 (T).RSI is showing some resistance at current level. Volume and Open interest is firm which indicates further bullishness.

Gold - Commentary On 19 Sept 2010

Gold reached an all-time high of $1274.95 per troy ounce this week as heightened economic uncertainty and quantitative easing speculation encouraged investors to increase their exposure to the precious metal. The US dollar has seen broad declines over the past week and could depreciate further if the Fed announces another round of quantitative easing. The Federal Reserve will meet on 21 September to discuss its policies and a pro–quantitative-easing tone may provide the impetus for further gains in gold. Goldman Sachs chief US economist Jan Hatzius earlier this week reported that further quantitative easing could be initiated as early as November. After the Japanese government intervened to weaken the yen on Wednesday, Japanese investors may seek shelter in gold on fears that further intervention may be on the cards. Gold has also traditionally been thought to be a good hedge against inflation, and with inflation in the UK not budging at 3%, there could be an influx of UK investors buying more bullion. The bullish sentiment was echoed by precious metals researcher GFMS, which hasn't ruled out the possibility of gold rising to $1350 this year as investment demand outstrips jewellery use. Notwithstanding this, demand for gold from the jewellery market is also expected to remain strong leading into the end of the year as gift-giving ahead of various religious festivities props up buying. This week also saw the last major gold miner close out its gold hedging positions. AngloGold Ashanti announced on Tuesday that it plans to raise around $1.5 billion to close out its hedging contracts, which were a major burden for the company as it locked in the price it received for gold at around $450 an ounce. This latest move will allow AngloGold Ashanti to benefit from future price increases in gold. This may be interpreted as a bullish signal as it suggests the miner is confident gold prices will rise further. On the other hand, it could also be considered a bearish move if you take the view that the company is closing out its previous hedge contracts in order to re-hedge at today's prices due to a belief that gold prices have peaked and will decline in the future. However, this seems unlikely as the fundamentals driving gold prices remain firmly intact.