Gold lacks lustre in Akshaya Tritiya week

Gold retreated last week as the US Federal Reserve announced another $10-billion cut in the stimulus programme (to $45 billion). The yellow metal dropped 0.2 per cent and closed at $1299.70 per troy ounce.

Silver followed suit. The metal dropped 1.2 per cent and was at $19.74 per ounce on close of trade on Friday.

Platinum was up 1 per cent to end at $1438.38 per ounce. South African mine workers called off their recent strike but with supplies still curtailed by the prolonged shutdown of mines, prices are still rising.

The market ignored news of a sharply lower US GDP growth. The US Bureau of Economic Analysis’ advance estimate of first quarter 2014 GDP showed that the US economy grew at 0.1 per cent for the period. The number of claims for jobless benefits — a measure of layoffs in the US — rose last week.

The Friday morning report on US employment situation, however, reversed negative sentiment about the economy. The US Department of Labour said that 2,88,000 jobs were created in April, the highest addition in a month in more than two years. The headline unemployment rate dropped 0.4 percentage points to 6.3 per cent.

Investors in the physical market remained undecided, not willing to buy into arguments in support of gold. The US SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, saw outflows.

Last week, the fund’s holdings dropped by 6.59 tonnes. In April alone, the ETF has seen its holdings drop by 25 tonnes. Gold coin sales, however, improved in April from a seven-month low in March with more retail buyers shopping for the metal.

In India, the demand for gold on Akshaya Tritiya, which fell on May 2, didn’t meet expectations. The spot price of 24-carat gold was ₹29,970 per 10 gm in Mumbai’s Zaveri Bazaar, down ₹180 per gm. Silver was quoting at ₹42,259 a kg against ₹42,300 a kg a day before. Turnover in gold ETFs in National Stock Exchange was also lacklustre.

The MCX gold futures contract declined marginally and closed the week at ₹28,871. MCX Silver futures contract was down 1 per cent at ₹42,083. Gains in these contracts were checked by a stronger rupee. The rupee ended the week at 60.16 against the US dollar — a three-week high. Dollar selling from corporates and banks also propped up the currency. The rupee can turn very volatile ahead of election results on May 16.

Therefore, gains or losses on gold and silver contracts in MCX will be a function of the rupee in the coming weeks. Caution is, therefore, warranted.

With Friday’s strong employment report from the US Labour Department, gold may see some selling pressure this week. But if the Ukraine crisis escalates, safe-haven demand may take gold prices up again. Hundreds of pro-Moscow separatists stormed government offices in Ukraine last week. This had Ukraine mobilising troops to retake its position. Ukrainian elections are scheduled for May 25.

In the US, data points scheduled for release this week include the Institute for Supply Management’s non-manufacturing index on Monday, international trade balance on Tuesday and jobless claims on Thursday.

The US Fed is right on track to withdraw its stimulus completely by end 2014. With a $10-billion cut in stimulus last week, Fed’s monthly bond purchases are reduced to $45 billion now. This is a sign of the Fed’s optimism about US economic recovery; a negative signal to gold investors.

Market sentiment doesn’t seem to be in favour of gold. Despite opening above $1,300 levels, the metal dropped to a low of $1,277 last week. If the downtrend continues this week, and it drops below $1,270, it can go further down to $1,260. After this, the drop to the 2013 low of $1,178 can be very rapid. However, the medium- term trend will continue to stay positive until the metal holds above $1,270 levels.

MCX gold (₹28,871) is consolidating in the range of ₹28,200 and ₹28,980. It needs to move above ₹29,000 to go higher. It was expected that during Friday’s trade the metal may make a breakout above ₹29,000 but it didn’t. Near-term supports are at ₹28,400 and ₹28,200. Upside targets are ₹28,965 and ₹29,000. MCX Silver (₹42,083) broke the support levels that were indicated in these columns last week. This opens up further downside risks to the contract. The next support is at ₹39,500 and ₹39,000. After this, the 2103 low of ₹38,536 offers support. On the upside, targets are ₹41,800 and ₹42,300.

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