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After tumbling for five consecutive weeks, gold prices paused for breath last week. The yellow metal was range-bound between $1,080 and $1,105 per ounce.
The outcome of the US Federal Reserve meeting on Wednesday kept gold prices under pressure as it left the door open for rate hikes in September.
However, weak employee cost index data from the US on Friday came as a positive, helping gold prices to reverse higher from a low of $1,080 to $1,103 before closing at $1,095.8.
On the domestic front, the gold futures contract traded on the Multi Commodity Exchange (MCX) closed at ₹24,813 per 10 gm, up 0.33 per cent. The silver futures contract closed 0.96 per cent higher at ₹34,025 per kg. The Indian rupee weakening below 64 has helped limit the downside for the domestic gold contract.
Market players have recently been predicting that gold prices may tumble to $900 or even $800. With the US set to raise rates this year, gold prices are expected to remain under pressure, for sure. On this count, data releases through this month will need a close watch for cues on a September rate hike.
But can this take prices to $800 to $900? If you are a contrarian, you may think not. For one, there are the signs of reversal in the Australian dollar. The currency has traditionally had a strong correlation with gold prices as the country is one of the top producers of the yellow metal. The Aussie dollar has been tumbling against the US dollar in step with gold, ever since prices peaked out in August 2011. The currency is currently trading at 0.73 against the dollar, and has an important long-term trend-line support at 0.71. A reversal from this level could help the gold price decline to halt.
Two, gold itself has strong long-term support at $1,065. The slower pace of the down-move and the sideways consolidation between $1,077 and $1,110 in the last two weeks suggests that gold would need a strong trigger to break below $1,065.
However, if gold does tumble below $1,065, bullion prices can drag the Australian dollar. The next stop for the yellow metal could then be at $1,000 and $970.
On the charts The downside pressure could ease if gold records a strong daily close above $1,100. This will also increase the chances of a rise to $1,115 and $1,120.
On the domestic front, the contract is range-bound between ₹24,500 and ₹25,000. A break-out on either side of this range will decide the next move. A break above ₹25,000 can take the contract to the next targets of ₹25,500 and ₹25,700 this week. But if the contract breaks below ₹24,500, it can fall to ₹24,000 or even lower. On the daily line chart, there is a double-bottom pattern in the making, which points to a high probability for the contract to move above ₹25,000.
MCX-Silver, on the other hand, is getting strong support near ₹33,500. The 21-day moving average resistance is at ₹34,565. A strong break above this resistance can take the contract higher to ₹35,000 and ₹35,450.
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