The golden pressure

After hitting a low at $1193 per ounce last week, gold successfully rebounded above $1200 last Friday. However, in contrast to the past few weeks, last weeks rally was definitely tough for the yellow metal, as hopes that global economic recovery is underway kept prices under pressure.
In keeping with the international market price trend, where gold has slid by 4.2 percent from record high $1261 per ounce touched last month, metal prices in the local market also fell to Rs 33,128 per 10 grams on Friday from the record high Rs 34,242 per 10 grams touched last month,
Optimism in economic recovery has been supported partly by positive global output growth forecast by IMF, as it raised the 2010 world growth estimates to 4.6 percent from 4.2 percent predicted earlier.
Moreover, the State Administration of Foreign Exchange (SAFE) in China overruled the option of dumping its US Treasury securities holdings lately, giving a direction to investors who were very bullish on gold on the back of reports of heavy buying from China to diversify its foreign exchange reserves.
Consequently, the SPDR Gold Trust, the biggest exchange traded fund backed by bullion, saw outflows as gold holding fell to around 1,314.5 metric tons last week from 1,320 metric tons as of June 30.
"I just feel that we could be near the top of the range for gold," said Credit Agricole analyst Robin Bhar last week while talking to international media. "Maybe there are factors that will help support it, but I don think youve got the fear factor any more," he said.
On the flipside, others believe that once gold prices dip further below the current level, investors in Asian countries will likely drive prices by taking long positions.
Traders in India, who alone account for around a quarter of total gold jewellery demand, have already started piling up gold stock for the upcoming religious festivals, starting from August.
If they keep piling while global economy keeps recovering, the two forces will likely offset each other in the near term, keeping global gold caught in a tight range near its current levels, at least until signs of economic direction become clearer.
For Pakistani investors, however, the range-bound price theory may not necessarily work, as the rupee has started depreciating again - sliding 3 percent in the last three periods. And, if currency weakens further in tandem with higher prices, gold could become too hot to handle for the wedding hopefuls.