Bullion Cues. Gold poised at the brink

Gold had another forgettable week in global markets, registering a negative close below the psychological $1,200 per ounce mark at $1,191.42, down 2.2 per cent. Mixed data releases from the US prompted gold to register volatile trades between $1,204 and $1,223 until Thursday

The trigger for the sharp fall came on Friday in the form of the US non-farm payroll (NFP) and unemployment data. The NFP increased in September by 248,000 as against the market expectation for a 216,000 rise. Also, the unemployment rate in the US fell below 6 per cent for the first time since July 2008 to 5.9 per cent in September from 6.1 per cent in the previous month. The strong US jobs data saw the dollar surging against all major currencies. As a result, gold prices declined sharply, falling below the psychological $1,200-mark to a low of $1,190.14 . The close below $1,200 could put more pressure in the near term.

Silver, on the other hand, was beaten down much harder than gold and it fell 4.6 per cent last week to close at $16.84 per ounce.

The strong US employment numbers released have increased speculation further in the market for an early interest rate hike. So the market will now be watching carefully for the release of minutes of the US Federal Reserve’s September 17 meeting this Wednesday for cues on rates. This will be followed by the usual weekly unemployment claims data on Thursday. Gold prices now seem to be almost wholly driven by action in the dollar. Neither the US air strikes in Syria nor the other geopolitical tensions prevailing across the globe have in recent times helped provide a floor to the yellow metal’s price. Yes, the movement in the dollar will continue to influence gold prices. And the dollar index (86.64) remains strong. It can rise further to test 87.3 in the near term, which implies that more pain is on the cards for gold.

Technically, price action in the coming week is going to be crucial for gold. The close below $1,200 for the first time since 2010 is a concern for the commodity. The price can fall to test $1,185 and $1,179, which are the crucial trend line and 100-month moving average support levels, respectively.

A reversal will fuel hopes for a corrective rally. But, whether the support will be broken or will hold should decide the next leg of movement for gold. A strong break above $1,200 could turn the sentiment positive. If gold declines below $1,179 decisively, it will be bearish for the medium term. This can take the price lower to the next target of $1,170. Also, it will reduce chances of a rise above $1,200.

In such a scenario, gold will be left in danger of a sharp fall to $1,150 or even lower levels.

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