The Gold to S&P 500 ratio is still down by 64 percent from the highs made in August 2011 while Silver/S&P 500 ratio is down by 81 percent from the highs.
Commodity prices traded mixed with bullion continuing upside. Gold prices rallied to record high. Crude oil prices traded lower while Copper prices ended marginal down for last week. Zinc and lead prices rallied the most amongst the base metals on higher demand prospects. Commodity prices kept upside limited as green back fell more than 1 percent for last week to 93 mark as investors sold dollar with fall in real US interest rates.
Bullion prices extended the rally for the eighth week on the trot on safe haven buying. Spot Gold prices at COMEX rose by more than 3 percent to $1,975 per ounce hitting the all-time highs at $1,984 per ounce. Silver prices continued outperforming gold with spot silver at COMEX rallying by more than 7 percent reporting the highest monthly gains since 1979.
The Gold/Silver ratio fell to 81 while 10-year average lies at 69. Bullion prices rallied on sell-off in dollar index as US real interest rates started declining amid sluggish economy. The Gold ETF holdings continues to hit record highs as holdings at SPDR Gold Shares rose to 1,241.95 tonnes on Friday. The CFTC data showed that the money managers have decreased their net long positions to six-week low by 9,617 lots as prices are nearing the psychological resistance at $2,000.
The COMEX Gold August contract expired last week with traders marking the daily delivery notice of 3.3 million ounces which is the largest since 1994. The front month December contract was trading in premium with over $23 per ounce.
The US Federal Reserve maintained the dovish stance and vowed to use all the tools to support US economy. The uncertainty over new aid package from US has also supported bullion prices as US congress and Trump administration struggled to get a breakthrough on weekly unemployment benefits.
Bullion prices are yet to recover more in relation to equities after falling from the highs made in 2011. The ratio of gold and silver with S&P 500 is signalling further bullishness in bullion prices in coming months. The Gold to S&P 500 ratios is still down by 64 percent from the highs made in August 2011 while Silver/S&P 500 ratio is down by 81 percent from the highs.
The weaker dollar amid negative real rates may continue to support gold prices in medium term. The plunging yields will drive investors out of dollar which will boost buying in gold. We expect gold prices to trade higher with near term resistance at $2,000/2,055 per ounce and support at $1,950/1,900 per ounce.
At MCX, Gold August prices have near term resistance at Rs 55,000 per 10 gram and support at Rs 51,500 per 10 gram. Silver prices at COMEX are facing strong resistance at $26 per ounce with strong support at $2,220 per ounce. At MCX, September Silver prices have important resistance at Rs 70,000 per kg, support lies at Rs 61,500 per kg.
The author is Senior Analyst - Commodities at HDFC Securities.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.