Dollar dictates gold prices

Gold’s movement this month was mainly driven by the strength/weakness of the dollar and the search for a trend regarding inflation/deflation. The starting of the month saw a steep fall in the prices which almost touched $900 an ounce which is a two month low.

But a fall in the US$ Index provided some support to the prices of yellow metal which moves in opposite direction to the greenback. Euro also found good support near the levels of 1.38 to a dollar and climbed by almost 3% towards the end of the month thus taking the prices of the precious metal to higher levels. However, a lot depends on the US economy right now, as the expectations of recovery over there might provide strength to the dollar in the coming days.

In case of Indian scenario, the imports have been significantly lower in 2009. The Bombay Bullion Association reported that Indian gold imports in June were 11.6t, 52% lower than the same month last year. During first half of 2009, Indian imports were 63.4t, 54.4% lower year-on-year. Gold firmed up in July riding up on dollar weakness. After a weak start market took support around $900/ounce levels and steadily headed upwards for the rest of the month.

If prices are to sustain above $960/ounce for August, another attempt towards $990-1000/ounce seems likely. At MCX market has been trying to breach Rs.15000/10gm mark since April of this year and a closing above the same should see the yellow metal move towards Rs15250/10gm levels. A word of caution though is that, the gold historically doesn't perform well in August-September owing to lack of physical demand. Hence bulls need to stay cautious.

Courtesy: Religare Commodities

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