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Rediff.com  » Business » Where are gold prices headed?

Where are gold prices headed?

September 15, 2006 14:53 IST
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Gold has already broken the psychological barrier of $580.

Sunil Kashyap, MD, Scotia Mocatta, believes that the downside in gold prices is seen limited to $550 levels.

According to him, short-term speculators are still taking profit in gold. He attributes fund liquidation as a reason for current weakness in gold.

Excerpts from CNBC-TV18's exclusive interview with Sunil Kashyap:

Would you agree that we are going to have some more downside in gold?

Maybe a little bit, I am not a very aggressive bear, but I think we are seeing a lot of physical demand at these levels and that will continue to give some support. There has definitely been a lot of fund liquidation of positions and people have been taking profits on their long positions, so that's why we have seen a decline.

But at these levels of $575 or so, we have seen a lot of support and so if we do see a downside it will probably be down to only $550, not any lower than that.

Would you buy at $550?

I think at these levels yes, between $550-575 is a good opportunity to buy because the overall picture for gold still looks very good.

It has got a new lease of life in terms of an investment asset now and there are new investors coming into the market all the time and even new money coming into the market. Therefore, for the next few months, if not years, gold will remain a good asset diversification but that doesn't mean one will see $700-800.

But one will definitely see some store of value remaining in gold, going forward

How

large has this fund liquidation been and in the near term do you expect to see more selling pressure whether it is for precious metals or even the crude market, which has been correcting?

Yes. I think it is clearly driven by the crude market. There has been some liquidation but the liquidation is more in terms of short-term players. If one looks at the ETF (exchange traded fund) action and one looks at the overall holdings of the ETFs, they have actually gone up over the last couple of days. So that tells us that long-term investors are still buying and we are at a record high, in terms of ETF in New York.

So you still have a situation where short-term speculators are taking profits on their positions but long-term investors still going in. We do have a positive outlook for gold.

Are you seeing any signs at this point that we are entering a sort of situation like we had in May, where there was such a huge outflow across metals?

If you look at the trend again in the same ETF data, there was a decline in May in ETFs. This time we are not seeing that decline. At that time, there was a situation where the price had run up too much and there was a definite need to take profits. This is more of a situation where short-term speculators were getting out rather than long-term investors.

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