Bullion Quarterly Outlook Q2, 2010

By Commodityonline

The multi-faceted yellow metal gold had a hard time during the wake of the worst recession since the Second World War as an untimely rise in US dollar eclipsed the safety haven appeal of the metal. Gold was also caught up in the imbroglio where panic selling engulfed the market.

However, the metal benefitted from the subsequent dip in the economical cycle, which pummeled the US currency, driving investors towards the safety of gold. The metal, since then, went on to explore new heights with investment and safety buying piling up, lending the metal with wings to rise.

Gold prices, during February 2010, hit its lowest level since the month of November 2009 as technical selling that emerged following a stronger US dollar and Macro Economic concerns that threatened the European nations and its currency put pressure on the market.

Emergence of significant physical demand at lows has helped the metal keep most of its gains from the Bull Run that commenced during the beginning of the 21st century. Investment demand of the metal has also been supporting prices.

Physical demand from the major importers like India and Turkey has been encouraging. According to the Bombay Bullion Association imports of India during the month of March 2010 has jumped towards 23-28 tonnes as compared to 4.8 tonnes during the same time last year.

The US GDP climbed out of negative territory and jobs market also bounced back, ensuring the recovery in the region to be underway. The depreciating US dollar discouraged imports and emboldened producers to export more, resulting in it narrowing the trade balance and supporting the US currency in its recovery. In addition, falls in the European currency also gave the American green back the impetus to rise towards further highs in the first quarter of 2010.

However, building uncertainties in the region have given rise to safe haven buying in the yellow metal. This paradigm shift was first observed in the Euro denominated gold, which held on to most of its earlier gains and trended towards the all time high, while gold denominated in dollar fell almost $200 from its all time high of $1226.

The correlation of gold with other major commodities being traded have witnessed considerable decline during the first quarter of 2010. The movements in crude oil prices were mostly in accordance with that of the US dollar, resulting in a decline in correlation with that of gold.

The rising US dollar continues to remain a threat for the yellow metal’s uptrend while safe haven buying is expected to give support and contain any decline.

Silver, being a precious metal, usually moves in tandem with gold and had slid at the turn of the century as rising US dollar weighed on the sentiments. The investment interest also showed a declining trend during the time.

However, the dips in silver prices were always perceived as buying opportunities as safe haven buying that emerged in the yellow metal trickled into silver prices as well. The metal also assumes the role of an industrial metal, thereby enjoying the support from base metals, primarily copper.

Improving industrial demand with global economic recovery underway is expected to support prices of silver in the second quarter of 2010. The part precious metal silver will also imbibe buying interest from the yellow metal, providing silver with additional support.