Amid the gloom surrounding the global financial sector, following the bankruptcy of Lehman Brothers and takeover of Merrill Lynch, the precious yellow metal has stood alone as a potential winner.
Gold prices gained almost 2% in international markets in early morning trade and kept up the momentum as investors scampered to invest in the precious yellow metal because of its appeal as a safe haven investment and continued weakness in the dollar.
However, later it pared some of the days?s gain as falling crude oil prices prevented any sharp rally.
Gold prices had dropped sharply in the last few weeks as oil fell 2.1% to $99.02 a barrel and earlier touched $98.46, its lowest since Feb. 26, as dealers bet on a swift recovery in U.S. energy production after former Hurricane Ike moved inland and the government loaned oil to two refiners.
Monday, it dropped even below $97 per barrel because of further waning of hurricane Ike. ?Gold is still not out of the bearish phase that we have seen in the last few weeks because of drop in crude oil prices and will have difficulty breaching the $800/ounce resistance,? said Gnanshekhar Thiagarajan, director, Commtrendz Risk Management Services, a local commodities research and trading firm.
He feels the next resistance for gold in the international spot markets could be $800/ounce, followed by $835 per ounce.
Meanwhile, the precious metal rose sharply in the morning because of its inherent values as a safe-haven investment gained as much 4.5% at 0630 GMT (1320 IST) and was trading at around $783.2 per troy ounce in the international spot markets. Prices were climbing from a second day recovering from last Thursday?s tumble to an 11-month intra-day low of $736 an ounce. Later, however, it shed the day?s gain as crude oil slipped below $97 per barrel.
Silver, the other potential winner in the gloom, also rose by around 1% to $11.06 per ounce, before falling.
Analysts said precious metals gained substantially, as the greenback dropped as much as 1% against the euro, adding to Friday?s slide, its biggest one-day decline against the single currency in six months.
?Its just the start and we could expect gold prices to gain further, infact much more than what we have seen today as unravelling of the impact of the credit crisis will lure many investors from currencies to the yellow metal,? another Mumbai-based analyst said.
He said the downturn could not have come at a better time for gold, as battered by rising dollar and falling crude prices, the metal had shed almost 26% since May. ?Its good news for gold investors, but bad for currencies,? another trader said.
In the local markets, which trail their international counterparts, gold had risen by almost 2% at 1332 Hrs IST, and the October futures in MCX was selling at Rs 11,657 per 10 gm, before falling crude limited the gains to just around 1.36% at 1600 Hrs IST.
Silver futures was more moderate and at 1330 Hrs IST was selling at 18,640 per kilogram, up 0.93% from previous close for the December contract, it also dropped following gold and at 1600 Hrs IST was down by around 0.31% from last close. Analysts said although gold prices failed to hold on to their gains Monday because of weakness in crude oil prices, but the metal would continue to remain in focus because of the credit crisis in the US.
?Today it was Lehman and Merrill Lynch that sparked the rally in gold, tomorrow it could be something else, so the metal would remain in focus till the cloud over global credit crisis clears,? another analysts said.
?In the local markets, I feel October gold futures would face strong resistance at around Rs 11,800-Rs 12,000 per 10 grams,? said Harish Gallipelli, head research, Karvy Commtrade.