Gold Prices decline on profit booking

Gold prices last week hit a record $1,030.90 an ounce, but fell sharply and closed at $917, far lower than the previous week’s close. In fact, the yellow metal’s fall from the peak has been so sharp that it has shed 11.5 per cent.

What the market is currently witnessing is profit-booking and analysts have no two views on gold being an asset class.

The crash in the equities market, lead by the Bear Stearns saga, was the primary reason for the profit booking — more than the Fed’s 75 basis point rate cut — and the precious metal’s fall. The fact is that funds are ensuring that they are left with profits in at least the commodities counter, after being wrapped hard on the knuckles in the equities market. After falling to $903, gold has recovered to end the week at $917.

According to Mr Anul Goel of Kotak Commodity Services Ltd, gold witnessed a severe rejection on the day it peaked by forming a gravestone doji and latter a shooting star candle-stick pattern on the charts. In a nutshell, it means that the current trend can come to a pause but not necessarily turn down as it could have also been sideways. On the next day, a one month up trendline (red) was broken on a closing basis with decent volumes. According to Mr Anul, the Fed rate cut shows more concern towards containing inflation, thereby putting a downward pressure on the gold prices that is mainly used as an inflation hedge. On the same day a much longer trend line was also broken with huge volumes and there was a sharp fall in open interest exhibiting longs being liquidated.