Last Updated : 02 December 2008 at 14:45 IST

Recession eroding appeal for commodities

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Commodity Online
Gold tumbled the most in eight months on speculation that the slumping global economy will damp demand for commodities.

Silver plunged more than 8 percent. Equities in Asia, Europe and the U.S. fell following reports that showed manufacturing in China contracted last month by the most since at least 2005.Industrial declines in Europe and the U.K. also deepened.

According to a research report from Kedia Commodities, Gold is headed for an annual drop after seven straight yearly gains. Precious metal is being so far steady today in the markets as worries persist and expand due to the deepening of the global recession that is eroding to a further extent the appeal of commodities including the gold of course.

Moreover, the dollar, the opponent of gold, is steady as well, not forgetting that these two have an inverse relation.

Plus, oil prices, the back support of the shiny metal, remain to be pressured by the economic woes to the downside, discouraging gold to rise. Up till now, the precious metal recorded a high of $778.50 an ounce and shows a strong tendency to slip to the downside.

The dollar is steady in the markets since there's a lack of crucial fundamentals and as fears are carrying on having investors hesitating to take big moves unlike yesterday where a severe unwinding of carry trades took place encouraging investors to buy loweryielding assets which made the yen advance against the majors yesterday.

So far, investors are being away from the Gold and the green currency as no high returns seem to seen in the picture.

Looking at a daily chart for February Gold at MCX in India, the report notes how trading volume has been curtailed since prices moved into the aforementioned $100 consolidation range.

Gold prices are now hovering near the middle of this range, and the 20-day moving average is hovering near current prices. The 14-day RSI is showing a Berish divergence, which may skew the odds of a near-term rally.

The report advises that traders should watch the trading volume once prices begin to hover near the top or bottom on the recent price range, and if prices move above or below the extremes of the range on higher than normal volume, it may be a signal of the next direction of Gold prices.