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Gold may trade in higher range

G. Chandrashekhar

MUMBAI, Aug. 3

NOTWITHSTANDING the fact that little has changed in the gold market over the last four months, the sentiment has turned distinctly positive, catching many by surprise. Given the resilience of bullish buying, some have come to believe gold may trade sligh tly higher till the end of the year.

With the sentiment for gold turning better over the last three to four months, analysts are willing to raise the expected dominant trading range by some $10 an ounce, but they have ruled out the possibility of a sustainable bull rally in gold on the grou nd of insufficient conditions for such a development.

Positive sentiment has returned to the gold market with a much firmer tone and readily steady upward trend in gold prices has been evident since April, according to Commodities Forecaster, a report published by Macquarie Research.

The recovery is attributed to a number of factors. The most important has been the narrowing of the gold contango, driven both from falling US interest rates and from relatively high gold borrowing costs (lease rates) which has greatly reduced the attrac tiveness of forward selling, particularly at gold prices near $260/oz and below. In addition, talk of inflation and general financial market uncertainties has been supportive.

In addition, there has been considerable improvement in interest in gold equities. Whether this has been based on seeing gold as a safe haven or for portfolio reasons (gold was the last of the metals equities to rally) is unclear, but the movements are u sed by some traders as a signal for gold prices, the report pointed out.

``In light of this, we have modestly raised our expected dominant trading range over the next six months from $250-265 an ounce to $270-285 an ounce as a result of the improved market sentiment; but note that temporary moves above and below these levels are still clearly possible,'' the report said.

There are several factors which could potentially rekindle the bullish sentiment seen during May once again over the rest of the year - another lift in lease rates, a significant cut in US interest rates, a weakening of the dollar and rising inflation, a ccording to Mr Kamal Naqvi, analyst.

However, at present, fundamentally the gold market appeared largely balanced and was set to trade in a range between $260 and $ 285 per ounce, the analyst said. If gold prices fall below $260/oz, physical demand would improve and selling would ease from producers, scrap suppliers, traders and speculators, although not yet by central banks.

On the flip side, there was still not sufficient buying demand, physical or investment, plus forever the prospect for increased central bank selling and/or forward selling (from producers mainly), at higher dollar price levels to justify a sustained rall y in gold prices, Mr.Naqvi argued.

Related links:
Gold registers 2-way movement
Gold may test lower levels
Gold likely to remain in $250-275 range

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