Commodity Analysis

War clouds over Iraq lift gold

Gurumurthy K | Updated on November 22, 2014 Published on June 15, 2014

BL16_GOLD

Gold and silver rally as investors move to safer assets

Gold prices moved higher because of the increase in risk aversion caused by the escalating civil war in Iraq. Global gold prices gained 2 per cent to close at $1,277 per ounce last week.

The economic data releases from the US failed to meet market expectations. This limited dollar strength, thereby supporting gold price.

Retail sales in the US for the month of May rose 0.3 per cent, lesser than the 0.6 per cent rise expected. The Producer Price Index (PPI) fell 0.2 per cent as against an expected 0.1 per cent rise. Initial jobless claims increased to 3,17,000 for the week ended June 7, up by 4,000.

In addition to this, a sharp fall in platinum and palladium prices last week also aided gold. The five-month long strike by miners in South Africa is expected to come to an end following an agreement to increase wages by about 20 per cent.

This news triggered a sharp sell-off in platinum and palladium on Thursday and Friday. Platinum fell from its high of $1,487 per troy ounce to close at $1,434, down 1.2 per cent for the week. Palladium, on the other hand, tumbled from the high of $864 per troy ounce to a low of $807.7 before closing at $814.5 on Friday, down 3.6 per cent for the week. Reports suggest that investor interest and the money pulled out from these two commodities could now shift to gold.

Cues to watch

The developments in Iraq will be a major event to watch in the coming days. The recent rise in gold price has happened due to short covering.

But if the situation gets worse in Iraq then the yellow metal could get a safe-haven boost which could take the price further higher.

The other event that will be in focus for the week will be the outcome of the US Federal Reserve meeting on Wednesday. Any significant hint on the plans for a rate hike could turn the dollar stronger which, in turn, could drag the gold price lower.

Domestic market

On the domestic front, a weak rupee lifted the gold price higher last week. The MCX-gold futures contract closed at ₹26,627 per 10 gm on Friday, up 2.9 per cent for the week.

The rupee is expected to remain weak unless the situation in Iraq improves. This could make the domestic prices move higher. The MCX-silver futures contract surged 4.7 per cent last week and closed at ₹41,875 per kg on Friday.

On the charts

The global spot gold ($1,277 per troy ounce) price has further room to rise in the short term. But the rise could be limited as significant resistances are ahead for the commodity.

Key hurdles are placed at $1,285 and $1,300. Though these resistances can be tested this week, technically, an immediate breach of $1,300 might not be very easy. A reversal from $1,300 levels can drag gold lower to $1,260 in the short-term.

On the domestic front, the MCX-gold futures contract (₹26,627 per 10 gm) has key resistances ahead at ₹26,950 — the 200-week moving average and then at ₹27,000 — trend-line resistance. The contract can extend its up move to test ₹27,000 in the coming week.

A breach of ₹27,000 can take the contract higher to ₹27,600. On the other hand, inability to breach ₹27,000 can drag the contract lower again to ₹26,000 and ₹25,850 in the short term. It will also keep the medium-term bearish outlook intact to test ₹25,000 and ₹24,830.

The global silver spot ($19.7 per troy ounce) has risen back sharply above the psychological $19 level. It can rise further to test its next resistance at $20. A break above $20 can take it higher to $20.4. Failure to breach $20 can keep it ranged between $19 and $20 in the short term.

The MCX-silver futures (₹41,875 per kg) has strong support near ₹41,000. Immediate resistance near current levels is at ₹41,900. But the contract can breach this level and rise to ₹42,700 in the coming week. This level of ₹42,700 is a key level to be watched.

Inability to breach this level will keep the medium-term bearish outlook intact for the contract.

Published on June 15, 2014

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