Recession, supply fears to propel gold prices

A bullish trend in gold is expected in the coming week after the yellow metal corrected itself following an all-time high of $936.30 an ounce ($942.20 on COMEX), according to analysts.

Gold corrected below $900 early this week, but recovered on Wednesday on short-covering, buying at lower levels and record highs in platinum ahead of the interest rate meetings of European Central Bank and Bank of England.

According to one analyst, in times of recession, people prefer the dollar over gold, because holding gold involves storage and insurance costs, and whose low lease rates make it unattractive versus the greenback.

"The lease rate of gold is as low as 0.48-0.50 per cent a year in contrast to a minimum return of 3 per cent on the dollar, which is ready cash that people prefer holding during an economic downturn," said Daman Prakash, director of Chennai-based MNC Bullion, an advisory and broking company.

Prakash feels the dollar is well-supported at $1.4000 to the euro with resistance at $1.5000.

"I think COMEX gold April could be headed for a correction on the downside. $888 looks like a good support level, which, if breached, could take gold to a low of $850-855," said Prakash.

For COMEX silver March, Prakash sees upside at $16.50 and the bottom at $14.80 an ounce. "The silver market is smaller than that of gold and so it can be subject to sharp speculative movements on the up- or downside," added Prakash.

Unupom Kaushik, head of commodities, Anagram Comtrade, is very bullish on gold. "Gold is consolidating in a range of $888-910 and I expect an upside from here over the short term," said Kaushik.

Last Tuesday, COMEX gold hit a low of $888.40 as the euro fell on weak eurozone service sector data for January, stoking fears that the US economic downturn may have spread to Europe, analysts said.