All that glitters is Rajan?

Rajalakshmi Nirmal | Updated on April 07, 2014

RBI Governor Raghuram Rajan

The RBI Governor’s hint about rolling back gold import restrictions has indirectly aided gold prices

Gold halted its slide in the international market, aided by the weak US non-farm payroll numbers. It logged a gain of 0.6 per cent last week and ended at $1,303.5 a troy ounce. The intra-week low was $1,277.8.

In India, gold prices corrected during the week as the rupee gained sharply against the greenback. However, after RBI Governor Raghuram Rajan’s hint of a likely rollback of curbs on gold imports, the rupee gave up some gains and helped gold prices move higher.

International gold prices were under pressure for most part of the week as demand was sapped by the rising US dollar.

The greenback zipped higher on a weak euro. On Thursday, the European Central Bank left its benchmark interest rate unchanged at a record low of 0.25 per cent.

But President Mario Draghi said the bank will soon take measures to stimulate growth and fight low inflation. The euro dropped to $1.3698 versus the dollar intra-day on Thursday and ended the week at $1.3705.

The US Services sector PMI in March was 55.3, crawling up from 53.3 in February. Job gains for the previous two months were also revised higher.

The claims for unemployment benefits rose last week, but the primary trend reflected in the four-week moving average continues to signal a strengthening labour market.

In the physical market, demand for gold was weak. Reports say Chinese banks have been importing less gold.

The yuan’s depreciation has made imported gold costlier for Chinese consumers. SPDR Gold Trust, the largest gold-backed exchange-traded fund in the world, ended the week with a holding of 809.18 tonnes of gold. This is 7.79 tonnes lower from last Friday.

Silver closed the week at $19.96 an ounce, up marginally. Platinum prices gained 2.9 per cent to $1,450.3 an ounce due to a strike in South African mines.

Cues to watch

This week, gold traders need to keep an eye on data releases from the US before taking any long positions on the metal. The minutes of the Federal Open Market Committee meeting that happened during March 18-19 will be released on Wednesday. On Thursday, the weekly jobless claim number is expected. On Friday, producer prices and a consumer sentiment reading from the University of Michigan and Thomson Reuters will be released. Do also keep a watch on the Russia-Ukraine crisis. Russian forces are still reported to be on Ukraine’s eastern border.

A toughening of the EU’s stance against Russia may stoke gold prices again. The Chinese Government has announced a $24-billion stimulus to increase investments in roads and railways to shore up growth. But it remains to be seen if this will revive consumer appetite for gold.

Domestic investors

MCX gold futures dropped 7 per cent in the last three weeks on the rupee gaining strength against the greenback. But, the contract retracted last week on Raghuram Rajan’s hint of easing import curbs on gold. This may be a tactical statement to pull down the rupee. It needs to be noted that from a high of 59.59 on Tuesday, the rupee dropped to 60.08 by Friday. That said, it is unlikely that the Government will make import policy changes before the elections are over.

Also, lifting of gold import curbs in India is not really good news for domestic investors. Only when supply is tight, do prices move up sharply. Also, with higher imports, the premium on domestic gold will decline, thus bringing down the domestic prices. This time, price is unlikely to run up too much in anticipation of a jump in demand, as it did when Sonia Gandhi asked the Government to consider relaxing import curbs.

MCX gold futures closed at ₹28,464, up 0.3 per cent. The intra-week low was ₹27,861. MCX Silver ended at ₹42,969, up 0.4 per cent.

On the charts

Last week, gold cut its support of $1,280 and touched $1,277. But the subsequent recovery above the key resistance of $1,300 is a bullish signal. If gold makes a breakout above $1,321 this week, it can go further to $1,348. Supports are at $1,277 and $1,268. MCX gold futures (₹28,464) cut the indicated support level at ₹28,000 and slipped to ₹27,861 last week. But since prices have recovered and moved above the ₹28,000 mark, the upside targets for this week are ₹28,800 and ₹29,000.

Supports are at ₹28,000 and ₹27,861. In MCX Silver futures, resistance is at ₹45,000. On the downside, supports are at ₹42,500 and ₹42,000.

Published on April 06, 2014

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