GOLD

FUNDAMENTALS

Gold prices surged to a record high level on Wednesday, supported by a combination of strong positive factors. High energy prices, high agricultural prices, the dollar weakening and geo-political instability remained supportive for the precious metal to climb to 28 year high levels. Gold futures for February delivery at COMEX surged $22 to close at $860 an ounce. The contract saw the highs of $864.9 an ounce in electronic trading.

The dollar extended its recent losses against most major counterparts on concerns of slow down in US economy and corresponding increase in expectations of interest rate cut by Fed after the yen after the Institute of Supply Management said the U.S. factory sector contracted in December for the first time in nearly a year as new orders collapsed. The dollar index was down about 0.8% at 75.970.

The Eurosystem's reserves of gold and gold receivables fell EUR40 million to EUR184.494 billion in the week ended Dec. 28, the European Central Bank said Wednesday. The Eurosystem consists of the Frankfurt-based ECB and the 15 euro-zone national central banks.

Gold is expected to continue it good performance in 2008 supported by concerns for increased inflationary pressures and global security tensions as well as a still weak outlook for the US dollar. However, trade in precious metals is likely to remain quite volatile in short run as the various hedge funds and commodity indexes begin their reallocation process.

TECHNICALS

The prices closed above short term and medium term EMAs, which supports bulls. MACD is running upwards in positive territory, showing increasing bullish momentum. Stochastic has made bearish crossover in overbought region. Prices are likely to see volatile action.

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