Gold gains most from US budget deal,not likely to surge above 1400-1500: Saxo Bank

LONDON (Oct 19)   Gold was the main beneficiary of the US budget deal which found support from the falling dollar and bond yields this week, according to Ole S Hansen, Head of Commodity Strategy at Saxo Bank.

In a weekly update, he pointed out that The DJ-UBS commodity index was higher for a second week in a row while the energy-heavy S&P GSCI was down for the first week in three. The best-performing sector was precious metals which found support from the falling dollar and bond yields. The energy sector was torn between supportive Chinese growth data and rising supply on the one hand and general uncertainty about near-term demand on the
other.

The gold rally from recent lows of $1251 per ounce were driven by short covering and weakness in dollar. Although dollar's role as a global reserve currency will not be challenged by this latest debacle, it may trigger some concern among investors about how to treat the greenback in the future, he said.

Gold has support from US development as the solution arrived at is temporary and will expire in January. "The downtrend in gold has been broken by the sharp recovery and this points towards some near-term consolidation between US $1290/Oz to US $1343 an ounce.

For a remarkable recovery in precious metals complex, investor appetite has to improve and until then sideways trend can be expected. Gold could create selling opportunities on every gain which could again bring down prices.

"Unless we see significant negative reactions on the back of indefinite QE, gold might not get much support to challenge long term resistance levels above $1433/Oz and $1525/Oz." Ole S Hansen said.