Commodity Trade Mantra

Gold Prices Expected to Rebound towards Year End

Gold Prices

Gold Prices Expected to Rebound towards Year End

Gold Prices started the new trading week on an up move. Comex Gold Prices rose moderately higher yesterday on some bargain hunting buying interest after Friday’s big sell off session, but rises remained limited by a stronger US Dollar index that hit a fresh two-month high. The US Presidential Elections today is one big uncertainty for Gold Prices and trades may mostly remain range bound till the outcome is seen tomorrow. There is a big leadership conference in China later this week and there also are key European Union events occurring this week along with a vote in Greece’s parliament this week on new austerity programs. Currency markets are eyeing developments in Greece, as Prime Minister Antonis Samaras struggles to secure parliamentary support for a series of austerity measures that need to be approved if the country is to get its next $40 billion installment of aid. India Gold Demand is on the rise due to its Diwali festival season and because recent declines in Gold Prices are prompting bargain hunting. While Comex Gold Prices recovered just a portion of Friday’s sell-off, MCX Gold Prices in India recovered all of the declines seen last week on the back of a sharp 1.50% decline in the INR – Indian Rupee against the US Dollar. MCX Gold Prices for December contracts shot up to Rs. 30,935 from the day’s low of Rs. 30,491 & from Friday’s low of Rs. 30,355. Currency-driven weakness in Gold Prices will again be witnessed in the Indian Commodity Markets as the INR again starts its upside movement against the US Dollar, though Gold Prices in Dollar terms see a sharp rise.

Gold Prices Eye US Election Outcome for Triggers:

The sharp decline in Gold Prices suggests that euphoria of the QE3 that moved Gold Prices close to $1800 seems to have completely faded away. The outcome for the presidency and the Congressional elections will determine investors’ perceptions on Washington’s likelihood of addressing the potentially recession-inducing Fiscal Cliff and in turn expectations for direction clarity on Gold Prices & movements in the months ahead. Physical Gold demand has picked up at declines as well as continued interest in physically backed exchange-traded funds – Gold ETF has been seen rising due to the looming Fiscal Cliff in the U.S. and other global macroeconomic worries. Gold Prices will continue to perform well in 4Q 2012 with no near-term end in sight to the easing cycle, especially given the continuation in central-bank Gold buying. U.S.will be back in contracting mode if the Fiscal Cliff of $400 billion gets triggered. Fiscal Cliff is the term markets are using for the combination of automatic spending cuts and tax hikes that kick in early next year in the absence of congressional action. With the US elections concluding this week; Policy guidance & more clarity on monetary and fiscal policy should come soon. Fed members’ comments in the coming weeks will be important in providing clues as to what Gold Markets can expect from the Dec. 12 FOMC meeting. The outcome of a divided Congress, and in turn much back-and-forth disagreement surrounding the fiscal cliff and the debt ceiling, would be supportive of Gold Prices, in a similar manner to the outcome of the U.S. debt ceiling debacle last autumn. The exit of the US elections triggered uncertainty factor would provide a better indication on fiscal policy and allow investors to anticipate how the U.S. fiscal cliff and debt ceiling debate are likely to play out. All these issues will drive Gold Prices for the remainder of the year.

Gold Prices have many supporting factors Post Election:

Global Financial Markets will be nervous and actions could be extremely volatile in the final months of the year with a close focus on news pouring out of the US. Economic events lined up just beyond the US Presidential Elections could have a long-lasting impact on Gold Prices. There are a variety of measures that both political parties agree upon, which are likely to be allowed to expire at the end of this year, including the termination of long-term unemployment benefits and the 2% payroll tax holiday. “Even if a congressional compromise is reached, 1% to 1.5% in 2013 fiscal drag is likely as both parties agree various tax cuts should end in December. The temporary reduction in the Social Security tax will expire at the end of the year. There are new taxes associated with the health care law that will come into play and extended unemployment benefits end. Moreover, none of this is even open for discussion. A very tight Electoral win could make it challenging to get a Fiscal Cliff compromise that the market seems to have just priced in. If more political gridlock does derail compromise plans, the U.S. equity market would likely react negatively as it prices out the expectation for a fiscal cliff solution. That would also be negative news for the economy and keep the US Federal Reserve’s current quantitative easing program fully in play.  An even worse outcome than one winner or loser could be another repeat of the 2000 presidential election in which the issue of hanging ballot chads and differing outcomes in the Electoral College and the presidential vote pushed the election results into the hands of the Supreme Court. Economists of all political persuasions agree the U.S. is vulnerable to slipping back into recession next year if the fiscal cliff is not addressed. There is nothing in sight that suggests U.S. economic growth will get back to more normal growth levels around 3-3.5% anytime soon. Nomura forecasts 2013 GDP for the U.S. at a mere 1.5% pace, a sluggish pace by any measure. With the fate of the economy in the hands of the politicians near term, risks remain high for an even slower U.S. growth rate than that lackluster 1.5% forecast.

Tech Specs for Silver & Gold Prices:

Comex Gold Prices on a close above $ 1703.8 could rise to $$1731.7, $1747, $1765 & then to $1810. Till below the $1702 levels, Gold may remain weak & downside triggers could lead to declines towards $1661, $1647, $1618.3 & then to a very strong support at $1603. Comex Silver Futures will gain momentum on a break & a close above $32. Silver Prices could then shoot up to $33.40, $35.20 & then $37 also. Weakness in Silver Prices will remain till trade movements are seen below $32 which on downside triggers could lead to $30.33, $28.72 or Finally to $28. Crude Oil Prices have a strong support around the $82 level. MCX Gold will retain bullishness till above Rs. 30619 & could rise towards Rs. 31,055, 31217 or further to 31501 also. But currency weakness in US Dollar could push Gold Prices below the crucial level also. MCX Gold Prices below Rs. 30583 could trigger sharp declines towards Rs. 30,331, 30168, 30034 or then to 29701 also. MCX Silver will retain Bullishness only till above Rs. 58,240 & could rise very sharply, but if weakness pulls Silver below Rs. 58150, the declines may extend sharply to Rs. 57,201, 56,820 or 56,000 also.

 Interesting article: President Obama’s Debt, Measured in Gold

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