Gold Might Loose Its Shine

Last week, gold prices declined below $900 an ounce. At the outset, a short-term weakness seems to have fully set in gold, despite a minor recovery on Friday to $889.

A major reason for gold’s fall last week was the strengthening of dollar. With the US President, Mr George Bush, saying that things are likely to look up from this week, we may see gold’s sheen wearing off a little more this week. Among other dampeners for gold last week was the World Gold Council’s report for the first quarter of this year. The report shows fall in demand across all sectors.

In particular, jewelery demand has declined sharply in the first quarter, basically since gold prices had ruled high during the period. It even touched a record $1,034 on March 17. The overall indication is that physical demand for the yellow metal is yet to see any significant pickup. In the futures, too, there have been interesting developments, signalling this fall.

Long speculators have been cutting down their holdings. Open interest of long speculators, who make up 47 per cent of the non-commercial holdings in gold, has declined to 2.02 lakh from 3.15 lakh that was witnessed when gold was at its peak. Other long position holders also seem to be shedding their holdings.