The yellow metal is gaining momentum, creating anxiety among gold bears.

Gold closed at $1,324 an ounce on Friday, advancing 0.4 per cent for the week. With this, the metal has gained 10 per cent this year, trumping other asset classes such as equity. Among other precious metals, silver was up 1.3 per cent (at $21.79/ounce) and platinum gained marginally (at $1,429/ounce) last week.

Bullion prices were up despite indications from the US Fed’s January meeting minutes that they will continue to taper. The market chose to ignore weak economic readings as it saw them as a fallout of bad weather.

The central bank currently buys $65 billion in bonds every month. If this is reduced, interest rates will rise and hit corporate profits. Stocks fell last week after the US Fed’s minutes were released. The Dow Jones Industrial Average dropped 0.3 per cent to end at 16,103 for the week. However, the dollar firmed up.

The dollar index, which measures the value of the greenback against a basket of major global currencies, gained 0.1 per cent for the week at 80.23.

The US housing starts data for January shocked the market, dropping 16 per cent to 8,80,000 units — the biggest drop in three years. Labour data disappointed too. For the week ending February 15, the number of jobless claims dropped by 3,000 to 3,36,000.

On Friday, the US will release its revised estimate of fourth quarter GDP growth. Bullion traders should watch out for that.

Domestic market

Gold futures on the Multi Commodity Exchange of India (MCX) made moderate gains last week. After hitting resistance at ₹30,260 (per 10 gm) on Thursday, it ended the week at ₹29,889, up 1.7 per cent. MCX silver gained 1.8 per cent at ₹47,467 a kg.

Bullion contracts gained mainly due to a weak rupee. Last week, alongside other emerging market currencies, the rupee, too, received a pounding. The Indian currency, which closed at 61.9 to the dollar on February 14, dropped to 62.4 on February 20 and ended the week at 62.13, down 0.3 per cent.

Last week saw good action on the bullion futures market.

The average daily turnover in MCX gold futures was ₹6,038 crore, up 28 per cent from the previous week. Compared with the past month’s average, volumes were up 5 per cent.

In silver futures, the average daily turnover during the week was ₹5,505 crore, up from the 30-day average of ₹5,107 crore. The National Commodities and Derivatives Exchange of India launched the silver hedge contract last week. Similar to the exchange’s gold hedge contracts launched in January, the price would be the international market silver price converted into rupees.

It will not price in duties or other levies or the domestic market premium. The size of each contract is 15 kg and the quote will be in ₹100/gm.

Cues to watch

Gold investors should keep track of data points next week. New home sales data is expected on February 26 and analysts expect it to fall from December’s record level. The durable goods orders and jobless claims data will be released on February 27.

Order for durable goods is expected to decline 1 per cent in January following December’s 4.3 per cent drop.

On February 28, the second estimate of the fourth quarter US GDP will be released.

The growth was earlier estimated at 3.2 per cent, but is likely to be revised to 2.5 per cent, going by recent soft data.

Also, do keep an eye on the movements in the US currency. Any further strengthening of the dollar may sap demand for gold. The US SPDR Gold trust reported a small drop in holdings last week.

From 801.25 tonnes, the holdings dropped to 798.3 tonnes.

What the charts say?

At $1,322/ounce, gold is at the resistance channel. This level is important also because it was the point at which the metal rested in November before seeing a steep correction. The price chart shows a double-bottom pattern. Wait patiently for the metal to cut $1,400 levels and complete the pattern.

If the price cuts $1,400 successfully, there could be some upside. However, before that there are two key resistance levels to cross — $1,337 and $1,361.

MCX gold (₹29,889/10 gm) futures showed some vigour last week and managed to cut ₹30,000 levels.

But then it couldn’t hold above this key resistance for even two sessions. A trend reversal can happen only if the metal cuts past ₹30,000 with significant volumes. If this doesn’t happen in the coming week, the contract can correct to ₹29,635 and ₹29,442.

MCX silver (₹47,467/100 gm) did come close to the resistance stated last week by hitting a high of ₹48,090.

The momentum is likely to continue in the coming week. The contract’s resistance is at ₹49,112. Downside supports are at ₹46,629 and ₹45,192.

(This article was published on February 23, 2014)
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