The other day I was watching Mr Gowariker’s artistry in Jodha Akbar, the Jewellery weared by the star cast attracts you towards the character. Such a bold use of Gold in the famous THEVA and KUNDAN Jewellery designed by more than 80 stylists made me think, what would have been the challenges for arrangement of budget for such a magnum opus.
Purpose of writing this article is not to boast about the movie but to reposition your focus on an individual ascertaining the prices of Gold, 12000!!!, this is too high a price for an person who wants to buy Gold either for hedging or for consumption on various occasions, and is a altogether dissimilar situation with what was faced by Mr Gowariker who had a backing of financers while producing the movie.
Gold prices touched $ 958.4 recently on COMEX, 12186 on MCX, an uncarpeted territory created by power shortages in South Africa, Persistent weakness in Dollar, Crude tasting 100 a barrel and Quakes in Nevada, one of the major Gold mining areas in the world. Hedge against inflation lured traders and participants to put the money in yellow metal, taking it out from the volatile equity markets.
How far can the rally sustain?
Rally in Gold was purely based on fundamentals, but is the rally sustainable for inexhaustible period the answer is no. As a thumb rule whatever goes up has to come down, the very basic of Law of Gravitation but holds well for other aspects also.
Gold is no different, recent report from WGC came at a time when there was out and out rally in precious metals. The report highlighted the fact that Jewellery consumption in the first quarter of the year will remain subdued due to high prices, Jewellery accounts for 70% of the total demand for Gold with India the number one consumer. First quarter consumption for the year 2007 was 565.2 tonnes compared to 490.3 tonnes in the corresponding quarter in 2006 and 681.3 tonnes in 2005. The report emphasized the fact that demand would remain under pressure during January-March period.
Recently, U.S. Treasury has backed the International Monetary Fund’s (IMF) plan to sell some of its $98 billion in gold reserves to help make up for a decline in revenue. The IMF holds 103.4 million ounces of gold and has suggested the sale of as much as 14 million ounces.
Technically speaking:
I tried to find out the reason for rally looking at Gold technically, the interesting thing which was instantly apparent was the Open interest, a simple way of looking out for the positions and there direction. Since the day, Gold initiated its rally, the Open interest got consolidated from 11203 since the start of the month to 13696 contracts after which it came down to 11748, this was the result of increase in long positions at the start and squaring off at the cease, as traders got lured towards high prices and started booking profits.
Putting Relative Strength Index (better known as RSI) for a 9 day time period to reduce the redundancy showed me a reading of 77, a clear indicator of overbought situation in Gold from where downturn is quite probable. Slow Stochastic show a reading of 87 an indication of overbought zone.
Outlook:
Medium term outlook for Gold depends on the correction which the prices will face in the near term. Traders getting lured by the high prices and investors skepticism to enter long will provide the trigger for the trend reversal. Supports for the contract are at 11587 and 11436 levels in the medium term, with upper level resistance at 12186 its all time high.
Till the time Jodha Akbar will keep luring me and you with the THEVA designs.
