Commodity Analysis

Strong US jobs data take sheen off gold

Rajalakshmi Nirmal | Updated on November 25, 2017 Published on July 27, 2014



Gold's upmove has been checked by a set of positive economic developments over the last week

Bullish bets on gold back-fired last week. Strong economic data from the US put worries regarding geopolitical tensions on the back burner. Spot gold prices dropped to $1,307 per troy ounce from $1,311/ounce in the previous week.

The number of US citizens filing for unemployment claims fell to an eight-and-a-half year low of 2,84,000 in the week ending July 19. The greenback shot up after the positive labour market data. The US dollar index moved above the 81 level and closed the week at 81.03, up from 80.52 in the previous week.

US SPDR Gold Trust, the world’s largest gold backed exchange traded fund, saw some investors sell their units. The fund’s holding dropped by 3.3 tonnes to 801.8 tonnes for the week. Gold demand in the physical market too dried up. In India, the world’s second largest gold market, premium on gold prices in the spot market fell to $5/ounce from around $9-10/ounce in the previous week. Chinese gold buyers too didn’t show any enthusiasm for gold. Data from the China Gold Association showed that the country’s gold imports from Hong Kong fell to 36.4 tonnes in June — a four-month low. Last year in the same month, the country’s gold imports were 100.9 tonnes.

Silver prices dropped to $20.74 per ounce, down 0.6 per cent. Platinum prices lost around 0.7 per cent and closed the week at $1478/ounce.

In India, spot gold prices dropped to ₹2,772/gram, down from ₹2,808.5/gram in the previous week.

MCX gold/silver

MCX gold futures closed marginally down for the week. On Friday, they ended at ₹27,938 (per 10 gram), down from the previous week’s ₹27,993. The intra-week high was ₹28,217 recorded on Monday.

MCX silver futures dropped 1.4 per cent to ₹44,281 (per kg).

The rupee remained range-bound last week. A weaker rupee could have capped some loss for those who were long on gold futures, but the currency held around the 60 level and didn’t offer any respite.

While geo-political tension will support prices, there aren’t enough drivers to take gold higher in the coming months. Week after week, the data from the US keeps reaffirming a revival in the economy. Also, with the dollar gaining strength and the euro slipping down, haven buyers can shift to dollar and abandon gold. So, unless the rupee drops sharply, domestic market gold investors may not see much returns from the asset in the medium term.

Premiums on gold in the spot market in Mumbai have been evaporating. Supply hasn’t improved significantly and demand has been poor.

Global cues

Last week, the euro lost its sheen to the dollar after data showed that Germany’s business climate index fell for the third month in a row in July. Investors, reports say, fear US sanctions on Russia to take a toll on Germany’s economy. The US dollar index moved above the 81 level and closed firmly up for the week at 81.03, the week’s high was 81.08. This was a blow to bulls who had long positions in gold expecting tensions to escalate in Ukraine and Iraq. The coming week is going to be action-packed with key data releases in the US. Traders need to watch out for the FOMC meeting on Wednesday. The same day the second quarter GDP data will be released. After a weak first quarter, analysts expect the second quarter growth to be good. On Thursday is the weekly jobless claims and Friday will see the release on employment situation.

On the charts

Gold’s upmove was checked by a set of positive economic developments last week. The metal, which would have otherwise attempted to move past $1,350, dropped and closed at $1,307/ounce. This week, there is a high probability for the metal to drop and test levels of $1,280-1,285 again.

MCX Gold futures rose close to the first resistance at ₹28,280 indicated in these columns last week. However, it later dropped and ended near the support zone. This week, it may move further down to ₹27,580 and ₹ 27,000. If the contract moves up after some initial correction, it can test levels of ₹28,200 and ₹28,400.

MCX Silver futures, which were stuck between ₹44,000 and ₹46,000 levels for more than three weeks, slid sharply and hit a low of ₹43,728 last week. Now, the contract may move further down to test ₹42,900 and ₹42,350 levels. Upside, if any, may see the contract move to ₹45,000 and ₹45,500.

Published on July 27, 2014
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