Gold looks strong at current levels: Karvy

Gold: After eking out a new high for this year early in the week, Gold futures prices so far have adopted a consolidative mode as market would be eagerly waiting for the ECB meet later today and the first labor sector release since the Fed backed US economy through open-ended bond purchase. The metal is showing slight positivity at the early Globex drawing support from the Euro. Asian equities on the same anticipation are also trading higher at present. Going ahead, we expect gold to remain on an upside bias as ECB is waiting for Spain’s request of aid. However Spain is showing reluctance in asking bailout before it faces the litmus test of 4billion Euros bond auction.

We expect European stability Fund to start buying bonds in primary market followed from Draghi’s presentation. At the stage of a 100billion Euros bank bailout, ECB may remain under pressure as the government is operating under the fixed exchange rate system. We therefore expect ECB to reduce the reference rate to a record low of 0.50% if not now but before the year end to support the moribund economy. These all indicate a likely stronger Euro (except a Spanish down-gradation which is not likely) and gold. Hence, Euro is likely to stay firm for the day which will be keeping gold buoyed. Reports today may forecast the US factory orders to get weaken while the minutes of the September 13 FOMC meeting will be drafting the details of bond purchase plan. All these indicate a weak dollar during the evening hours. Said so, we expect gold to stay strong for the day. We therefore recommend staying long for the metal from lower levels.

Silver: Silver futures prices have also gained a little at the Globex. Silver would have drawn support from the rising Asian equities and on the back of stronger Euro. We expect silver too to stay strong ahead of the ECB rate decision. As discussed in gold’s outlook, a likely unchanged interest rate and introduction of ESM in primary market may support the Euro. Also, Spanish bond auction may yield better result aiming at ECB to support the moribund economy. From the US as well the minutes of the FOMC meeting will be drafting the detail bond buying plan which would be keeping dollar under stress during evening hours. Hence, silver is likely to stay firm for the day.

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