Metal Weekly-Karvy Comtrade

BULLION

Bullion prices gained last week amidst a plethora of weak economic numbers, plunging global stocks and a slowing world economy. The appeal of the yellow metal as a safe haven drove its prices to an eleven month high of $1007.70 levels per troy ounce which is the highest since March 18, 2008. Silver also gained, tracking gold, with prices ending the week at $14.49 a troy ounce, up by 6.35%. The financial crisis has resulted in a recession in most of the developed nations with some investors buying gold due to fears that government measures are insufficient to bring the economy out of recession, while others buying the metal on speculation that money injection will fuel inflation. The Japanese economy shrank by 3.3% Q/Q, further deepening into a recession. The finance ministers of the G-7 (Group of Seven) countries held a meeting in Rome on Sunday, stating that a "severe" economic downturn will persist for most of 2009. The economic data provided credence to the above statement as the numbers reported a further decline. Economic data continued to worsen as Housing Starts dropped to its all time low of 4,66,000 units. Building Permits, which is a gauge of future housing activity, also fell by 5,21,000 units while industrial production fell by 1.8% in January, which is the lowest level in five years. In addition, the US Empire Manufacturing and the Philadelphia Federal Index also contracted sharply, proving fatal for the economy. The Fed revised its 2009 outlook and stated that the economy will contract between 0.5% and 1.3%. It also set its inflation target of 2%, while the unemployment rate is projected to rise between 8.5 and 8.8%.

Bullion prices are bound to gain in turbulent times as asset classes like equities and currencies continue to erode value. Investments in SPDR gold funds climbed to a record-high last week and are just shy of 1,040 tonnes, held by Switzerland, which is the sixth-largest stockpile. The holding stood at an astounding 1,029 tonnes. According to the London-based World Gold Council, investment demand for bullion, including coins and bars, almost tripled to 399 tons in the fourth quarter, as total demand climbed 26 percent to 1,036.5 tonnes. Investment in Barclays Plc’s IShares Silver Trust, the biggest ETF backed by silver, also rose to a record last week, topping 7,892.2 metric tons.

The most active COMEX Gold April futures contract surged by 6.37% and closed at $1002 a troy ounce. This week, the GDP and housing data along with Euro-zone industrial new orders and unemployment will be crucial to watch out for. Expected downturn in the US economic growth rate is likely to result in firm movement in bullion prices. Moreover, investments into
Technical view: XAU- SPOT GOLD
Spot gold rose sharply in the last week, witnessing more than 5.64 per cent from the previous weeks close and settled the week at $992.45 levels. Market also witnessed a high of $1005.40 levels. Market has been moving higher for the past two consecutive weeks as the short term as well as medium term moving averages are trading below the price levels. Technically, market is moving in a rising trend channel and shown a higher break out signaling prices to move further up in the coming sessions. Likewise, the momentum indicator RSI-14, weekly, is supporting the trend as it is currently treading at 0.65 levels. The momentum indicator has still potential to move further up and may enter into overbought territory.


However, in the daily price chart, the RSI-14 is treading at 0.72 levels, which shows, after an upward movement, market may set for a correction. Market is moving above the 76.4% retracement of the previous correction (from $1030.80 to $680.80), signifying auxiliary upwards move. Taking Elliot principles into consideration, the current trend which has resumed from $680.80 is the 5th impulse wave which is likely to move beyond previous top ($1030.80, or top of wave-3). On break of the same it may advance to $1060-1080 levels. However, for the week, we may expect market moving up to $1007.10 and breach of the same it may test $1030.80 levels. Likewise, on the lower side the supports are at $975 and then $960 levels. If market sustains above $975-960 range, then we may see prices to remain on higher levels for the week ahead.