Since October 24th 2008 GOLD has rallied some good 300 plus dollars (more than 40%) and every second person in the market is expecting gold to reach the level of $1200, and some even the euphemistic levels of $1500 and so on...
The so called "COMMODITY EXPERTS" come on TV and give their short/long term target for Gold, the same way they gave the target for Crude Oil when it was $140 (targets were of $200 by December and so on...). It also reminds me of target levels for SENSEX in last year January which they expected to be 30,000 by year end and so on...
However what exactly is the fate of those euphemistic targets is any ones guess. There are fundamental reasons that have lead to a rise in the gold prices but what has started recently is that people have started speculating huge by taking the fundamentals as base and I believe that when this happens the rise in the price of an asset class reaches its peak or like a BUBBLE.
The crisis is looming the European countries and it is expected that Germany will bailout some of the EU member countries. Germany holds the second largest gold reserves in its vault and there is a big buzz on the streets that it would sell some of it at an attractive price (~$1000 levels). Thus this should also bring the downward pressure on the prices. Moreover for people who invested in gold considering it as a safe heaven in the last few months , makes much sense to book the profits. The inflation against which GOLD is regarded as a best hedge is an extinct race for the time being. The dollar is gaining its strength against EURO (given the steps taken by the Obama government)
So I strongly believe that the upside potential for GOLD prices is limited and there exists a strong resistance level at around $1040. Lastly the biggest reason for the crash for US housing bubble, or the Crude bubble or any stock market bubble is the realization that "HOUSING/CRUDE/STOCK prices are something that is going to rise forever" and once this realization sets in (AS HAPPENING IN GOLD) one can believe that the bubble is at its peak and the fall is inevitable (If we can trust HISTORY).
Well it already seems that Germany is selling Gold in its vault.Gold is at 956 (when i write),a dip of more than 40$ since yesterday's high.There seems to be less reason now that gold will go for an upswing from here.Downside seems to be around 920 by this week though.As is it the Rupee is losing its sheen against dollar and this might prevent gold to go down further.But how much ? Lets wait nd watch.
ReplyDelete