Stay long in Gold: Karvy Commodities

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Karvy Commodities Broking has come out with its report on Gold and Silver. The research firm expects the Fed will be continuing its accommodative stance in its first meet of the year on Jan 31st. Gold would therefore be beneficial out of this logic. Hence, recommend staying long for the metal from lower levels.

Karvy Commodities Broking has come out with its report onGold and Silver. The research firm expects the Fed will be continuing its accommodative stance in its first meet of the year on Jan 31st. Gold would therefore be beneficial out of this logic. Hence, recommend staying long for the metal from lower levels.

Gold: Gold has changed a little at present and is trading marginally up by USD2 (USD1665) at the Globex. Expectedly, the Asian equities are also trading firm eyeing the Fed meeting. Going ahead, we expect gold to stay strong on the back of poor Q4, 2012 GDP number from the US. In Q4 the fiscal cliff resolution would have deterred the government to spend more, which was a major component for Q3 GDP to surpass the estimates over 3%. In the month of December, US have already hit the debt ceiling of USD16.4 trillion which is 105% of its nominal GDP of USD15.6trillion. Therefore, we expect the GDP growth to be slowed. Also, we expect the Fed to continue with its accommodative stance in today’s meeting. For the first time after April 2011, the US 10year bond yield rose above 2%.

This means an addition to the refunding cost of US which should force them to keep the yield low and hence accommodation should be in place. Consistent with its statutory mandate, the Fed seeks to foster maximum employment and price stability. Without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. Hence, to support a stronger economic recovery and to ensure that inflation remains at or below 2%, we expect the Fed will be continuing its accommodative stance in its first meet of the year on Jan 31st. Gold would therefore be beneficial out of this logic. Hence, we recommend staying long for the metal from lower levels.

Silver: Silver has extended gains at the early Globex by adding USD0.25 from its prior closing. We expect this gain to continue on increased demand for the metal. The US mint silver coin sales resumed after Jan 28th and surged to an all time monthly high. Despite a suspension for sales, huge demand triggered sales to soar up to 7.42million ounces so far in January. From the economic data front as well, as discussed in gold’s outlook, the US Q4 GDP is expected to come below 3% while Fed is expected to continue with the accommodative stance. Silver would therefore be remaining on a higher note. We therefore recommend staying long from lower levels.

Source: Moneycontrol.com

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