Gold Weekly Review: Strong Demand May Underpin Prices .

Gold galloped to levels near $1250 per once as the strong investment demand and continued worries on the global economic front stayed right in place. The equities continued to skid lower and the US dollar maintained a firm tone, making gold prices extend a rebound from a three month low of $1160 per ounce in the last week of July. Prices were quick to pile up gains from these levels and broke above $1200 per ounce mark at the start of August. The gains were seen intensifying after the DOW topped out at a two and half month high around 10700 levels and slipped lower.

The torrent of weak US economic data continued. US retail sales, a key growth driver, rebounded in July after two months of decline but lacked the vigor needed to pump up the economy. Retail sales rose 0.4% from June to 362.7 billion dollars on the back of strong auto sales, according to an update from the US Commerce Department. The University of Michigan's consumer expectations index finished at 62.9 in August, up slightly from 62.3 in July but is still is 3.2% lower compared to a year earlier. Housing data was bleak. Sales of new homes unexpectedly plummeted to the lowest level on record in July, dropping 12.4% in July.

The unemployment rate, meanwhile, remains near a 27-year high at 9.5%, further depressing consumer confidence about the future. The US economy grew just 1.6% in the second quarter, down from an original reading of 2.4%. The economy had expanded at a much faster 3.75 clip in the first quarter.

These pointers pulled stocks down around the world, making Gold and dollar rise in tandem. Gold stabilized around $1240 per ounce mark after the World Gold Council's latest Gold Demand Trends Report for the second quarter of 2010 forecasts demand for gold jewellery from India and China will be the main driver of the market for the remainder of the year.

Exchange traded funds proved the most popular way of accessing the precious metal on the retail investment front, as demand lifted by a whopping 414% to 291.3 tonnes. Meanwhile, global jewellery demand remained robust between April and June despite the higher prices, noted the WGC. Consumers snapped up 408.7 tonnes during the period, just 5% below year-earlier levels.

Gold witnessed a bout of profit selling as the prices neared $1250 per ounce mark and the dollar eased slightly. US stocks spurted on 27th August as Federal Reserve Chairman Ben Bernanke's stated that Fed is willing to do whatever it takes to revive the shaky economy. The metal still closed with decent gains and it will be interesting to see where the prices go on after the current spate of gains. The commodity has shown a direct linkage to the movements in the US dollar and any major slide in US currency could topple gold near $1215-20 per ounce despite the strength in investment demand. Local futures encountered heavy resistance around Rs 19000 per 10 grams mark and could be in for a sustained correction till Rs 18200 levels in case Rs 18800 mark gives up. However, the Indian festive season in approaching and the demand from the retail space would be on an upswing from India in next few weeks as traders rush to buy the metal in dips. Meanwhile, imports from Middle Eastern economies are also expected to play a role in shopping price dynamics for Gold. Iran imported over 22 tons of gold ingots worth over $855 million in the first four months of the current calendar year (started march 20, 2010). The amount shows 85,000 percent increase in terms of volume and 81,000 percent rise in terms of value in comparison to the same period previous year.

Source : indiainfoline.com