2009-11-05

Gold Likely To Hits USD 1,100 Before Correction

Over the past week, gold has held its ground despite dollar strength (the dollar appreciated from RM3.39 to RM3.44 against the Ringgit yesterday). Gold has reached new highs, and still most of the investor see upside. They target price is USD1,100 in Q4:09 may be met sooner than thought. They also believe that support remains in place. When gold breached USD1,000 in early September, physical selling went neutral (refer to physical index chart approaching zero). A value for the index above zero shows net buying. A value below zero shows net selling. The higher the value (in absolute terms), the greater the buying or selling pressure.

However, buying momentum spiked sharply in recent weeks, reaching a high for Q4 last week. While buying momentum in the physical gold market remains positive mainly from India and China, momentum is fading at current prices. Some expect some resistance from this front. That said, we also believe that any resistance from the physical market will be short-term, and buying momentum should remain positive for most of Q4:09 on high seasonal demand. Estimated that Q4 seasonal demand is 3x higher than that of Q3 (after accounting for price and currency effects). I believe the current gold rally still has some to go (independent from high investment demand).

However, from what we saw at the start of 2009, physical selling could be intense. Potential scrap flows may neutralise some of the dollar weakness most expect in Q1:10.

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