Will gold slump further?

Rajalakshmi Nirmal | Updated on November 25, 2017



Reduction in gold production can support prices

Gold prices continued their downhill ride to touch a low of $1,207/ounce last week. However, they bounced from that point and closed the week at $1,218/ounce, up from $1,215.7/ounce in the previous week. The fear of gold miners cutting down on production if prices plunge below $1,200 is holding prices. The cost of production of major gold miners is about $1,350/ounce now, according to estimates of analysts.

Despite the news of US-led strikes against militants in Syria, gold prices didn’t move up much and the metal lost its appeal to investors. The US SPDR Gold Trust, the largest gold-backed exchange-traded fund, saw its holdings fall by 2.99 tonnes to 773.45 tonnes.

The Dollar index hit a high of 85.68 and closed at 85.64 for the week on strong economic data from the US.

In the US, data showed that sale of new homes surged in August and hit its highest level in more than six years. Also, the final estimate of the second quarter (April-June) GDP that was released on Friday showed that the US economy expanded by 4.6 per cent.

In the first quarter, the economy had shrunk by 2.1 per cent. Both silver and platinum prices were sharply down. Silver declined 1 per cent to $17.65/ounce. Platinum closed at $1,300.6/ounce, down 2.7 per cent.

Cues to watch

Gold traders need to keep an eye on the dollar and the developments in Syria this week.

Gold is falling on concerns over strengthening US economy and the stronger dollar. Geopolitical tensions across the globe may not help a sustained recovery in gold, but at the same time, gold prices may also not fall significantly from current levels. There are two reasons for this. One, with the mining costs of most gold producers at $1,330-1,350/ounce, they can shut mines and stop new explorations. In such a case, supply will fall and curtail prices from slipping lower.

Two, if the dollar continues to rally, there may soon come a point when it will turn a concern for exporters in the country.

A stronger dollar will hurt corporate earnings by curtailing demand for commodities priced in dollars and check rally in stock prices. When stocks melt, dollar will lose its sheen and gold may regain attraction as a safe haven.

After two weeks of back-to-back data flows, the US economic calendar is going to be light this week with only the jobless claims data on Thursday and the employment situation on Friday.

On the charts

Technically, the gold chart looks quite bearish. The downtrend in the chart is intact. This week, if prices move below $1,207, they can well test $1,200. This is a key support for the metal.

If $1,200 is broken, prices can slide even to $1,180 and then $1,050. On the upside, resistance is at $1,220 and $1,230.

Also read: > Rupee leads gold up

Published on September 28, 2014

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