In the global market, gold prices may be currently struggling a bit to regain lost territory, but without doubt the macro situation is conducive for an upward movement because of the well-acknowledged safe haven status. So, don't be surprised in case of price spikes.
Investor interest of course remains the key to future price movement and given fragile growth and unresolved debt issues in Europe, gold is sure to attract interest. So, there is widespread expectation that investor interest will soon return.
Consider the latest developments. Uncertainties in euro area have actually worsened. Ahead of the G-20 summit, S&P downgraded the long term credit rating of Spain. The G-20 summit of finance ministers and central bank governors that concluded last Saturday requested that by next Sunday's EU summit (October 23) the euro area “decisively address the current challenges through a comprehensive plan.”
Although governments in the euro area may be working towards a solution, there is no guarantee that positive result will emerge.
So, the macroeconomic situation is gold supportive as of now. In case of ETP holdings, the longer term interest remains resilient. The metal held in trust is currently estimated at over 2,150 tonnes. On the physical side, gold bar premiums in Asia have hit multi-month highs. The physical demand from Asian markets is strong because of seasonal factors. So, even a small fall in price is greeted with demand.
Gold coin sales are doing well in the US and elsewhere. Even as the yellow metal begins to find support from physical demand, the appetite of central banks remains healthy. On the other hand, sales by the European Central Bank have been rather slow.
While physical demand is likely to cushion prices, a stronger dollar can cap the upside. Indeed, investors in need of liquidity may exit gold if equity markets were to weaken. On the other hand, if equities rise, money may move out of gold to the former. Either way there is risk.
Overall, one can expect range-bound trading in the coming days until some clarity is reached. The market may move between a low of $1,650 an ounce and a high of $1,730 an ounce. For the sentiment to turn bullish, a move above $1,800 is necessary.
The Indian domestic market closely follows London and New York price movements. Festival demand is at its peak. Yet, high prices have resulted in some shrinkage of volumes.
On Tuesday, gold declined below Rs 27,000 per 10 gm on weak cues from overseas markets. There is the possibility of prices weakening further once the festival demand runs its course.
Sunday's EU summit is crucial for further price signals.