Gold futures to correct lower

Comex gold futures ended lower due to an equity sell-off which triggered worries about a nascent recovery in the economic conditions. Gold prices posted their first weekly losses since the week of September 25, following four consecutive weeks of gains. The dollar rose on safe-haven buying after steep losses in the earlier sessions.

The gold trade is getting worried on developments about minor sale of Russian gold. The market also saw a series of higher gold production figures from some key miners earlier, but that news does not appear to be applying distinct pressure to gold prices. Investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, slipped 0.3 per cent this week as the dollar rebounded from a 14-month low against the euro.

Comex gold futures fell lower against our expectations. Corrective declines are expected towards $1,025-27, followed by a crucial support at $1,009-1,011, also being a rising trend line support point. In the near-term while below $1,055 we can expect prices to edge lower towards the support levels mentioned above. As we have been maintaining a bullish view for some time based on the big picture charts, we believe the bullishness to extend with some deeper corrections. As long as the crucial support at $1,009-1,011 remains intact, we feel gold futures could again inch higher towards $1085 or even higher towards $1,100.

Unexpected fall below $1007 could dent our bullish expectations.

Such a fall could take it lower towards $980 or even lower towards $928. Elliot wave analysis indicates a possible fifth wave move in progress. This has been confirmed above $978. A potential fifth wave target lies at $1,100. RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are still above the zero line of the indicator indicating the bullish trend to be intact. Therefore, look for gold futures to correct lower initially and then rise higher again.

Supports are at $1025, $1,011 & $982. Resistances are at $1,055, $1,072 & $1,085.

Gnanasekaar T.

(The author is the Director of Commtrendz Research and also in the advisory panel of Multi Commodity Exchange of India Ltd (MCX). The views expressed in this column are his own and not that of MCX. This analysis is based on the historical price movements and there is risk of loss in trading. He can be reached at gnanasekar_thiagarajan@yahoo.com.)

Gold ETFs: High Volume shows firm recap

Record gold prices may be deterring jewellery buyers, but they are triggering trading interest in Gold Exchange Traded Funds (ETFs). All gold-ETFs have seen volumes double in the last two days. GoldBEeS, which saw an average of 22,000 units traded last week, has seen a surge to 42,000 trades in the last two days.

However, Indian investors who bet on gold-ETFs a month ago have not participated actively in the recent rally. Their returns have been depressed, capped by the rising rupee. Despite the 5 per cent run up in international gold prices in the last one month, prices for domestic gold-ETFs are where they were last month. GoldBEeS, Benchmark Mutual Fund’s gold-ETF, which closed flat in Wednesday’s trade, has been hovering around Rs 1,570-levels for the last one month.

The spurt in gold prices in the international markets, from $1,000 last month to $1,053/ounce, follows the weakness in dollar on fears of a fall in the currency’s value. However, this has lent strength to the rupee, thus muting returns for investors. GoldBEeS, Goldshare (UTI Mutual Fund) and Relgold (Reliance Mutual Fund) all are below their last month highs. When gold crossed $1000 on September 8, all these funds reported new highs.

Source: The Business Line

Gold ETF | Advantages & Disadvantages

Advantages of Gold ETF:

• First, Gold ETFs allow you to invest in gold even if you have a small investible surplus. Instead of waiting until you accumulate enough funds to buy a 50 gm gold bar, you can make an investments in gold ETFs with an outlay of just Rs 10,000, to start with.

• Second, You can also gradually build your exposures by buying additional units as and when you can afford them. Second, you can phase out your investments in a Gold ETF over a period of several months or years, so that you do not invest lump sum at a single price.

• Third, when you take the ETF route, you can invest in gold without worrying about the purity issues that usually dog jewelery purchases.

• Finally, because you can liquidate your ETF units at NAV-based prices through the stock market, they may offer better liquidity at prices closer to the market than gold bars or jewelery.

Disadvantages of Gold ETF:

• One, returns on Gold ETFs may be lower than those on physical gold by virtue of management fees, transaction costs and other operational expenses levied by the fund house on the fund's NAV.

• Second, if the ETF units are not actively traded in the stock market, you may not be in a position to exit your holdings at the time or price of your choice.

Solutions:

• However, these risks appear unlikely to play out in practice. Competition between different ETF products may ensure that these products generate returns that are pretty close to those generated by physical gold.

• The problems associated with liquidity may be sorted out if the idea of Gold ETFs really catches on with investors.