Oil rally props up precious metals

Gold and silver touch one-month highs on buying from funds and speculators

The weak US dollar and strong euro coupled with the soaring oil prices led the precious metals complex to touch the highest prices for the month.

Last Friday, the Comex gold August contract rolled over into December.

According to Krishna Nathani, head, research, Indiabullion.com, after failing to break the support levels of $418 per troy ounce for August gold and $6.90 levels for September silver, the buying from funds and speculators led both metals to rally to one-month highs.

In addition, the failure of euro against the dollar to break the crucial support level of 1.1940 made euro also rally to 1.12 levels and dealers are looking at a level of 1.1250 for the euro.

"If this level is broken it will be bullish for the currency, which is targeting a rally of another 200 points. In such a scenario it won't be surprising to see both gold and silver rally as well," he said.

In the local markets, due to heavy rains in Mumbai, the physical demand remained virtually nil on August 1. As on August 1 , the price of standard gold (.995 purity) closed at Rs 6,145 per 10 gram, while pure gold (.999 purity) closed at Rs 6,180 per 10 gram. Silver too closed higher at Rs 10,835 per kg.

The weekly close of gold above its regular 100 and 200 daily moving averages has made it look bullish in the short term as well. December gold is expected to go up to $439 to $442 per ounce on the higher side, and $428 to $430 per ounce should hold on the lower side, Nathani said.

A survey conducted by Bloomberg with 46 analysts, traders and investors from Australia to New York, 29 advised buying Gold, while 6 preferred to sell while 5 were neutral thus indicating the bullish sentiment after last week's rally.

For silver on the other hand the resistance this week falls at $7.37 to $7.47 per ounce while on the lower side, a level of $7.15 to $7.06 per ounce is seen as a reasonable support level.

In Crude, after the fire in ONGC's oil rig, followed by a blast in a refinery in Texas then an announcement by Iran to start enriching its nuclear technology, the market began to rally.

In addition, the much awaited exchange traded fund (ETF) was launched in London last Thursday. Based on the market reaction when past ETF's of gold and silver were launched, it is expected that crude prices will rally further this week. However analysts point out that investors should remain steady when market rallies.

Further, this week is also seen as ideal time to initiate a short position. The market is expected to fall by around 5 per cent from the highs it is expected to make this week.

On the higher side September crude can be seen touching $ 62 to $64 per barrel, and on the lower side, the support is seen at $ 58 to $56 per barrel.