Market Review (6th July 2011 to 20th July 2011)
Gold surfed the wave of macroeconomic woes to set a new all - time high around $1610.70 in the fortnight. Gold advanced for the second consecutive week due to economic worries attributed the recent rise to the aftermath of Moody's downgrade of Ireland's credit rating and also the lack of direction from US Fed policymakers regarding the debt ceiling. At COMEX Gold August contract gained by USD 84.20/Toz while COMEX Silver Sep contract gained by 414.80 cents/Toz. In the same period MCX Gold August contract gained by Rs. 1141.00/10 gram and MCX Silver Sep contract gained by Rs 5957.00.00/Kg. At NSEL, Ahmadabad spot Gold gained Rs. 1298.00/10 gram and Silver gained by Rs. 7787.00 /Kg. NSEL Demat E-Gold gained by Rs. 115.80/ gm while NSEL Demat E-Silver gained by Rs. 604.10/ 100 gm. Early in the fortnight Gold garnered impressive gains, shooting up to two-week highs as the bounce from lows under $1500 extended further for the yellow metal. The news of ECB lifting the interest rates for the second time in three months weighed on US Dollar, kept the gold soaring. The European Central bank lifted the benchmark-refinancing rate by 25 basis points to 1.50% and it gave a double boost after the European Central also commented that there will be more benchmark rate increases in the future, despite weak economic growth in southern Europe and problems in the bond markets. Meanwhile the Bank of England left its key interest rate unchanged at a historic low again, as expected, and maintained the size of the quantitative easing at GBP 200 billion.
Later in the fortnight gold punched new all time highs as the persistent concerns over the Europe's sovereign-debt crisis will spread beyond Greece and also as the Moody's Investors Service placed the US credit rating on review for a downgrade boosting safe haven demand. The benchmark August gold futures on the COMEX division of the New York Mercantile Exchange topped near $1610.70 an ounce, a jump of more than $84.00 in the fortnight. The commodity literally had a one-way rally since 1st July 2001 rising by more than $100 per ounce. Fitch Ratings further downgraded Greece's long-term foreign and local currency issuer default ratings. Battered by rising borrowing costs and under the eye of other European governments, Italy's Senate upped the size of planned budget cuts in an effort to prevent the euro zone's third-largest economy from slipping into the debt crisis that has already claimed three smaller nations and the consequences supported yellow metal.
Investors spooked by the euro zone debt crisis and the threat of a U.S. default bought into the metal as a haven from risk putting it to record highs. Gold is up 13 percent this year, heading for an 11th straight annual gain, the longest winning streak since at least 1920 in London. Bullion almost doubled since December 2008 as the Federal Reserve kept interest rates at a record low and governments spent trillions of dollars to prop up the economy after the worst global recession since World War II.
Outlook
Performance of commodities continued to be dominated by macroeconomic events. Gold was the most eye-catching as it surged to new record highs. A continued rise in borrowing costs could push Italy down the same path as Greece, Ireland and Portugal have given further boost to gold. Moody's has threatened to downgrade the country's AAA credit rating, losing its status as one of the most reliable borrowers of capital in the world. Moreover the rising inflation in China has poised many gold and silver traders to see what happens next as, historically, precious metals are viewed as a safe - haven during periods of high inflation. Silver, following gold's coattail, also jumped to the highest level since May 11. We believe unresolved debt problems in the Eurozone and the US, as well as Fed's maintenance of low interest rates, will support the rally. However caution is advised if the metal surges too rapidly above that level as the Fed clarified that it will not put forward more stimulus measures in the near-term.
