Commodity Analysis

It’s a clear signal to sell

Rajalakshmi Nirmal | Updated on November 22, 2014 Published on September 20, 2014

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The upward movement in dollar and end of the quantitative easing are negative for gold



With the Federal Reserve cutting down stimulus by another $10 billion and taking a more hawkish stance on interest rates this time, gold price moved sharply lower last week. It dropped to $1,215.7/ounce, down 1 per cent.

Despite the Fed’s statement that interest rates may continue to be near zero for a considerable time, the fact that more officials projected a rate hike by next year saw the precious metals lose sheen.

Silver and even platinum prices took a knock. Silver closed at $17.8, down 4 per cent. Platinum ended at $1,336, down 2.5 per cent.

The US SPDR Gold Trust, the largest gold-backed exchange-traded fund in the world, saw holdings drop to 784.2 tonnes from 788.4 tonnes in the previous week.

Data on Monday showed that the industrial production in the US in August dropped by 0.1 per cent against the expected gain of 0.3 per cent. Data on housing starts in the US that was released on Thursday showed a drop in new home construction. The enthusiasm this created among gold bulls was dampened later by the FOMC announcement.

Cues to watch

With the hints from the Fed that rate hikes will happen by next year, there is a possibility of prices dropping below $1,200/ounce by the end of the year. The dollar is steadily moving up and there are new highs on Wall Street every other day.

So, gold investors need to exercise caution. The Dollar index ended at 84.7 last week, up 0.5 per cent, moving closer to the technical target of 89, following weakness in the euro. Brent crude prices, on the other hand, continue to trade below $100, lowering inflation expectations.

This week, the US economic calendar is heavy. On Monday is the existing home sales data. On Wednesday is the release of new home sales data. Thursday will see the Labour Department give out jobless claims number.

On Friday, September 26, the final estimate of the second quarter GDP will be released.

On the charts

There is a clear sell signal in the gold chart. Prices are targeting $1,200 levels.

When this level is breached, it may trigger sell stop loss orders and a steeper fall may be witnessed. With prices hitting a low of $1,213.8 on Friday and recovering only mildly to close at $1,229.6, this week, prices may move further down.

Published on September 20, 2014
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