AFTER a steep drop last Monday gold prices rebounded Thursday to regain trading above USD $1,200 an ounce.
Spot gold prices closed Thursday at USD 1226.75 an ounce, the equivalent of GD 255,703 up from the low of USD 1193.25 equivalent of GD 248,460 on October 6 last.
Some analysts feel that the only movement now is upwards towards breaking through the current solid technical resistance level, or cap, of USD1,250 an ounce.
A local analyst explained the fall below USD1,200 an ounce last week was because many investors had expected the Federal Reserve, the central banking system of the United States, to increase interest rates in the U.S.
As is generally known, rising interest rates reduce gold’s allure because the metal only offers investors returns through price gains, while a stronger dollar typically cuts demand for storage.
But some positive events for gold prices occurred, mainly on Wednesday.
Traders were yesterday still digesting a Federal Reserve Open Market Committee (FOMC) minutes released Wednesday afternoon which hinted that the Fed may have to hold off longer on raising U.S. interest rates due to concerns about weakening world economies especially in the European Union (EU).
“The dovish FOMC minutes have created a friendlier environment for gold,” the analyst said.
Consequently, the U.S. dollar index continued under selling pressure Wednesday morning, all in the favour of higher gold prices.
Additionally, China the largest consumer of the metal, resumed buying gold after a one week “golden” holiday from October 1 to October 7.
With the return of the Chinese participants Wednesday, volumes on the Shanghai Gold exchange rose to 26 tonnes compared to an average daily turnover of 24 tonnes last month.
Demand has also risen in India.
“The physical demand is not just from China; India is also buying consistently. While a weak monsoon season this year could somewhat dampen gold purchases, the impact is likely to be very contained.”
“With the start of pre-Diwali buying in India – the near-term outlook on gold could improve somewhat,” the analyst said.
These developments combined with heavy buying back of shares earlier sold at low prices (a process known as short covering) and safe-haven buying are all very favourable for boosting the prices of the yellow metal, the analyst said.
The gold ‘bulls’ who are positive about the upward trend in prices aim to produce a near-term price breakout objective close above a cap of USD1,250.00.
In a media release the Ministry of Natural Resources and the Environment (MNR&E) along with its regulatory agencies for the gold mining and trading business noted the three week high in global gold prices.
“The local gold mining industry is being encouraged to capitalise on the rise in prices as we seek to close out the year on a high for the level of declaration that is currently being recorded,” the media release said.
(By Clifford Stanley)
