Gold may hit new high in coming weeks

Gold is likely to hit a new high with gold futures for December delivery expected to breach the June 21 high of $1,266.50 an ounce in the next two to three weeks. The October futures traded on the Multi-Commodity Exchange (MCX) is expected to cross Rs 19,200 in the coming weeks. The Federal Reserve chairman’s assessment of the US economy on Friday confirms the view of most gold traders that the metal is likely to continue working its way higher in the weeks ahead.

Gold futures for December delivery posted fourth straight weekly gain on speculation that the dollar will weaken, boosting the appeal of the precious metal as an alternative asset. Gold futures settled at $1,237.90 an ounce on the Comex in New York, posting a weekly gain of $8.10 on weak dollar and long build-up on expectation of a fresh rally. The dollar fell against the euro after Federal Reserve Chairman Ben S Bernanke said the US central bank “will do all it can” to ensure a recovery.

“If the markets are going to see more quantitative easing, that’s going to weaken the dollar and boost gold prices,” said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. On expectation of firm trend in gold prices, traders bought the $1,250-strike price call options of the October series at an average premium of $16.50 an ounce. Traders also bought the $1,260-strike call, option monitor data provided by Bloomberg indicated. The gold may not fall below $1,230, the trading in put options indicates.

Gold, headed for a 10th annual gain, may reach at least $1,300 an ounce this year as investors seek a shield against financial turmoil, weak currencies and inflation, according to GFMS Ltd. Bullion demand increased 36 per cent in the second quarter as investors boosted purchases of gold-backed funds and pushed up prices to a record during Europe’s sovereign-debt crisis, the World Gold Council said August 25. Investors bought 291.3 tonnes in exchange-traded funds, or ETFs, the second- highest quarter on record, the producer-funded group said.

Hedge fund managers and other large speculators increased their net-long positions in New York gold futures in the week ended August 24, according to US Commodity Futures Trading Commission data. Speculative long positions outnumbered short positions by 221,191 contracts on the Comex division of the New York Mercantile Exchange. Net-long positions rose by 16,963 contracts, or 8 per cent, from a week earlier. Miners, producers, jewellers and other commercial users were net-short 264,300 contracts, an increase of 14,730 contracts from the previous week.