The Hindu Business Line : Gold succumbs to long liquidation

GOLD succumbed finally to long liquidation last week with prices falling below $ 350 an ounce even before the US interest rate cut was announced. Pressure from a stronger US dollar was supportive. After the announcement of a lower-than-expected 25 basis points cut resulting in modest dollar strength, gold managed to hold around the level of $ 345/oz.

Ever since the weekly Comex commitment of traders report revealed an all-time record non-commercial net long position of 264.5 tonne as of June 3, the market has been expecting, and rightly so, a bout of long liquidation. Since early June, Comex commitment of traders report had indicated only a relatively modest reduction in the non-commercial net long gold to 199.6 tonne as at June 17 — still a historically high level.

"The biggest surprise was that prices held above $ 350/oz for so long, particularly since becoming de-linked with the euro/US dollar,'' commented Mr Kamal Naqvi, analyst with Macquarie Research Equities.

On Friday, the official price was $345.50/oz (London PM fix), down 3.5 per cent week-on-week. "There is the potential for some physical demand and/or producer restructuring to occur at the lower levels, but aside from that we expect the gold market to closely watch the broader equity and currency markets for direction,'' the analyst remarked.

There is the possibility of downward pressure in the short-term as the market tests for genuine support but, overall, gold is expected to recover as there is little conviction in the US dollar or equity market recovery, according to Mr Naqvi.

Silver prices continued to follow gold last week, trading between $ 4.48/oz and $ 4.58/oz. There is some support evident for silver at below $ 4.50/oz, but very little follow through interest above this level. On Friday, silver was $ 4.53/oz (London AM fix), down 0.7 per cent week-on-week.

Platinum was quite volatile, bouncing between $ 650 and $ 675 an ounce on bouts of fund buying and profit taking, while palladium was relatively stable at below $ 180/oz. Platinum ended the week at $ 664/oz and palladium $ 177/oz.

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