Gold Looks Positive, To Hit $1405 By Year End’-CommodityOnline

Published on: October 04, 2010 at 10:00 Those who predicted bullish gold scenario must be happy now that the precious metal has touched an all time high of $1314 levels and silver reaching a 30-year  high. Equity markets have also rallied on hints of quantitative easing by US Fed  Reserve. Atul Shah, Head, Commodities at Emkay Global Financial Services  Ltd feels it is the recent spate of weak economic data releases that has forced  investors to seek safety in gold. In an interview to Sreekumar Ragahvan of  Commodity Online, he has forecasted gold prices to reach $1405 by the end  of the year. Commodity Online: This month the focus is aptly on precious metals with gold and silver prices looks set for further gains. Gold prices have suddenly shot up to near $1300 levels after being range-bound at  $1260 levels. Some analysts had already predicted $1500 by year end.  Could you explain why gold prices have shot up suddenly and what  strategy investors should be looking at- buy or sell? Atul Shah: Gold has  primarily taken support from the uncertainty surrounding major economies since the beginning of 2010. The current year was expected to be a year of further  consolidation in the growth of developed economies of the world after a relatively stable 2009.  However, we had the European debt crisis at the beginning of the year itself  which intensified around March and April leading to doubts over global economic recovery and stability. The euro fell to more than four year lows against the dollar as investors' dumped riskier asstes in favour of the safe-haven greenback and  gold. Gold was trading near $1120 levels and the fierce investment demand  during this period led prices higher towards $1260 level.  The recent spate of weaker economic data releases from the US has again led  to fears of a double-dip recession in the US and the rest of the developed world  economies. This is leading investors towards the safety of gold as an alternative currency to the dollar and euro.  The investment demand for gold is currently pretty high as can be gauged from  the SPDR Gold Trust holdings, the world's largest gold backed exchange-traded  fund based in New York. The fund currently holds more than 1300 tonnes of gold  for investors.  In the near term international spot gold is likely to touch $1350. However, the  precious metal is very likely to touch $1405 level by the year end. Good support  now comes close to $1200 level. CO: Silver prices have zoomed to $21 aided  by the strength in metals and equities rally. In India too silver prices have  zoomed to record levels. Do you think silver prices are sustainable above  $20 & 32,000 levels and even rise further? If so what are the positive  factors for silver? AS: Silver is currently trading above $21.50 in Comex, a  30-year high, led by strong investment demand as reflected by record-high  holdings of iShares Silver Trust, an exchange-traded fund. The ETF said its  holdings rose to a record high of 9,756.04 tonnes by Sept. 28. Right now, silver  is supported by strengthin both gold and base metals prices. This is also  reflected in the Indian silver futures contract which has rallied past Rs.33,000  per kg level.  Silver continues to look good as long as it sustains above Rs.32,000 level and  the current rally could extend till Rs.34,500 level in the near term. The  corresponding buy target for Comex silver is $23.15 per ounce.  CO: How far does India's festival demand from September to November  aid the gold and silver rally and do you expect more fund flows to gold  ETFs in India?  AS:Indian demand for precious metals usually picks up in the month of August  and lasts till November. This is mainly on account of the festival and wedding  season during this period. India is mainly a price-taker for both gold and silver  and hence the impact of an increase in demand is generally reflected in prices.  Gold ETF's are providing avenues to retail investors for investing in the precious metal on a relatively small scale. This becomes very relevant when the retail  investor perceives that prices have rallied to extremely high levels and hence  cannot buy in bulk. Looking at the generally higher physical demand during the  festival season along with record-high bullion prices, it could be possible that  more funds flow into gold ETF's in India.  However, apart from ETF's we also have a product called ‘e-gold' introduced  by the National Spot Exchange, which might attract investor interest. Here gold  is available in small denominations and an investor can hold the same in his  demat account, just like an equity scrip. He can take delivery of the same as  and when required. CO: Why are global equity markets and Indian equities rallying in tandem with gold? Is there a positive cor-relation often between the two? AS: Gold has been rising consistently through the whole of 2010 and  has currently reached all-time high levels. The Indian as well as global equity  markets have picked up pace in the past 2-3 months, especially after the Federal  Reserve hinted at further quantitative easing to support the US economy. The  equity markets have given pretty good returns in a short time-span, hence giving  the feeling that both gold and equities are rallying in tandem.  On a longer-term basis there is not a very strong correlation between gold and equities, however, the two do seem to go in opposite directions during times of  uncertainty. This was very much apparent in the aftermath of the collapse of  Lehman Brothers in September 2008, when Indian and global equity markets  saw sharp falls but gold rallied. The current scenario suggests that investors  are ‘cautiously optimistic'. They are investing in riskier assets like equities,  crude and base metals but are simultaneously insuring themselves against  uncertainty by buying gold, which is seen as a safe-haven asset. CO: Do you  expect gold and silver prices to correct soon? If so what would be the  base levels beyond which it may not fall? AS: We might see levels of  $1350 for spot gold and $23.20 for spot silver in the near term. The chance  of a meaningful correction in these commodities before the completion of  these target levels is minute.  A correction in gold could likely take it close to the major support of $1180.  Gold looks positive for the longer-term as long as prices close above this  key support level on a weekly basis.  Silver could similarly find a base near $18 which is a very strong support level. Source: http://www.commodityonline.com/news/%E2%80%98Gold-looks-               positive-to-hit-$1405-by-year-end%E2%80%99-32235-3-1.html