Gold hovered to a new life time high of $1424 per ounce, as traders cited safe haven buying based on conviction that the European Union's joint bailout of Ireland with the IMF will not be enough to quash fears and Portugal and possibly Spain could become the next target of fixed-income investors' anxiety.
Gold's traditional inverse relation to the U.S. dollar broke down in previous couple of months when the euro zone's debt problems became apparent, prompting investors to dump the single European currency.
Speculators in New York have cut their exposure to gold futures by 4 million ounces in the last month and holdings of gold in the world's largest bullion-backed exchange-traded fund, the SPDR Gold Trust, have fallen by 1.5%. The difference continued since May when these issues first appeared; no one really knew how the EU and the European Central Bank would deal with that.
Furthermore, euro remained under pressure as the coalition government in Dublin looked to be facing a struggle to pass an austerity budget that is a condition of financial aid, while Spanish bond yields rose, reflecting fears of contagion from the Irish debt crisis. Irish and other peripheral government bond yield spreads widened and the cost of insuring higher-yielding euro zone sovereign debt against default rose as markets fretted over whether Ireland's embattled government will get its budget passed.
As for gold, the downside is likely to remain well supported as uncertainty over euro zone economies remains and further weakness in the single currency cannot be ruled out and troubles in the monetary union escalate as optimism over the Irish bailout evaporates. Elsewhere, tensions in the Korean peninsula prompted investors to trim risky assets, and the euro stayed under pressure as Ireland's debt crisis raged on.
On technical charts, Gold consolidated in November with the metal trying to set its feet above ` 20000 mark at MCX. While fresh lifetime highs were seen both at MCX & COMEX, market seemed quite unstable at higher levels.
Technical charts do indicate stiff resistance for gold prices in ` 20500-20800 range. In the international market too supply zone for the yellow metal lies between $1380-1420/ounce. While going for print, prices were seen trading close to these resistance levels, indicating testing times for the gold bulls for the month ahead.
