Gold prices expected to return to the upside

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Following a large correction two week ago, gold managed to hold relatively steady last week as it remained range-bound just below the psychological $1500 level, although it ended the week strongly.

On the daily chart, gold rebounded off its 16 – week support trend line and closed the week near a 7 – day high.

Analysts note gold’s correction has found considerable support around $1480 and some analysts believe the recent plummet is actually a strong consolidation phase and prices will soon return to the upside to record new highs.

The fundamental side continues to support this outlook, despite many predicting a strong dollar, because western economic growth will continue to falter, especially the Eurozone and volume buying growth in the Far East will progress significantly.

In fact, recent reports show that developing countries have become world’s largest buyers of gold bullion. Although India remains a close second, the Chinese investors already bought a staggering 93.5 tonnes of gold coins and bars in the first quarter of 2011. It is also worth noting that the PBOC’s gold reserves are tiny in comparison to those of the US and the indebted EU nations. China appears to be accumulating a sizeable cache while not announcing the sizes of their purchases in order to keep prices competitive and the long term outlook remains positive.

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