Gold continues to sink

Gurumurthy K | Updated on June 01, 2014



It was not the best of weeks for the yellow metal. Global spot gold price tumbled 3.3 per cent and has closed at $1,249.68 per ounce last week after recording a low of $1,242.33.

On the domestic front, gold futures traded on the Multi Commodity Exchange fell 1.8 per cent to close at ₹26,863 per 10 gm.

Silver fell 3.3 per cent to 18.82 per ounce and platinum was down 1.4 per cent to $1451.94.

Risk appetite increased in the market as the Ukraine tension eased after the US officials confirmed that Russia has pulled its troops from the Ukraine border.

Also, better-than-expected US economic data releases at the beginning of the week overshadowed the weak gross domestic product (GDP) and the consumer spending data that were released in the later part of the week. It made gold lose its sheen.

Investors, therefore, appear to have shifted their focus from the safe haven to stocks.

US data

US durable goods order for April increased 0.8 per cent and the consumer confidence index rose to 83 from 81.7 in the previous month. The jobless claims dropped to 3,00,000, lower than the market expectation of 3,18,000 for the week ended May 24, reflecting the improvement in the US labour market.

According to the second estimates, the US GDP is forecasted to fall 1 per cent in the first quarter of 2014 as against the 0.1 per cent growth projected in the previous estimate.

The consumer spending for April fell 0.1 per cent after rising 1 per cent in the previous month.

This week, the manufacturing purchasing managers’ index (PMI) data on Monday and the non-farm payroll and unemployment rate release on Friday are important data points which could influence gold price movement.

Cues to watch

The European Central Bank’s (ECB) meeting on Thursday is a key event to watch.

The ECB had signalled that it is open to easing its policy in June.

Any stimulus announcement from the ECB this week could trigger a sharp rise in the dollar, thereby putting pressure on gold.

On the domestic front, the outcome of the Reserve Bank of India’s credit policy on Tuesday will be significant.

The short-term outlook for the rupee looks weak. This could limit the fall in domestic gold price to some extent as compared with the global price.

On the charts

The short-term outlook for the global spot gold price has turned bearish. The inability to breach the psychological level of $1,300 for about five consecutive weeks that was followed by a sharp fall last week reflects lack of momentum for the price to rally.

This could limit the upside and cap it at $1,300 in the coming weeks and keep the yellow metal under pressure. Immediate resistance is at $1,260. While below this level, the chances are high now for the price to fall to $1,220 and $1,200 in the coming week. Strong resistance is in the $1,300-1,320 zone.

Only a decisive breach of $1,320 will bring back the positive sentiment into the market.

MCX-gold futures contract (₹26,863 per 10gm) is poised near a crucial support at ₹26,871, the 200-week moving average.

A bounce from current levels on the back of weak rupee could take the price higher to ₹27,200 initially and a break above this level can take it to the next target of ₹27,500.

An immediate rally beyond this level looks less likely.

On the other hand, if the contract continues to decline, it can extend the current fall to the next targets of ₹26,400 and ₹26,000.

Spot silver price in the global market has recorded a decisive daily close below $19 for the first time since June 2013.

Failure to bounce above $19 can drag it further lower to $18.4 and $18.2 in the coming weeks.

MCX-silver (₹39,586 per kg) fell about 3 per cent last week and has closed below the psychological ₹40,000 level.

The outlook is bearish and the contract can fall to ₹38,500 and ₹38,000 in the coming week.

Resistances for the contract is pegged at ₹40,000 and ₹41,150.

Published on May 31, 2014

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor