Commodity Analysis

Gold bounces back sharply

Rajalakshmi Nirmal | Updated on November 22, 2014 Published on October 12, 2014

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Worries on global economic slowdown pull gold from lows



Gold retracted from the support at $1,183 a troy ounce and closed the week with a gain of 2.7 per cent. It touched a high of $1,233 and closed at $1,223. Other precious metals too recorded strong gains. Platinum recorded a gain of 3 per cent and ended the week at $1,262/ounce. Silver closed at $17.39, up 3.2 per cent.

The minutes of the Federal Reserve’s September meeting that was released mid-week revealed that the central bank was concerned about weakness in the global economy particularly in the euro zone, and was not in a hurry to tighten its monetary policy. The IMF had early last week, lowered its world economic growth rate from 4 per cent to 3.8 per cent for 2015.

The Fed officials’ concern about rising dollar also turned out to be a positive for gold. The US dollar index slipped to a low of 84.93 on Thursday and closed the week at 85.91, down from 86.69 in the previous week.

These developments however couldn’t bring back gold ETF investors. The US SPDR Gold Trust continued to see outflows. The fund’s holding were reported at 762.08 tonnes, down from the previous week’s 767.47 tonnes.

Cues to watch

Gold may, in all likelihood, stabilise at the current levels or move slightly higher this week as physical market buyers come in and traders cover up their shorts. In the US, retail sales data will be released on Wednesday. Thursday will see release of jobless claims and industrial production data. On Friday, the housing starts number will be out.

From the dovish tone of the Federal Reserve it appears as if rate hikes will not happen in the near term. With concerns expressed over slowdown in world economies, the Fed may not do anything that will strengthen the dollar further and hit the emerging and other markets. When dollar strengthens, American exports become expensive for other countries, which then would start importing from elsewhere. This will hit the US companies and their economy which is just trying to move out of the woods.

On the charts

If gold moves above $1,233 and remains above it, its short-term trend will turn positive. This week, there is a strong possibility of the gold scaling up to $1,230 and $1,240.

The sharp rebound from $1,183 last week shows the existence of a strong support at that level. In the short-term thus, the metal may not break below $1,180. Silver, however continues to be weak.

Till the time prices remain below $18, it could move sideways with probabilities open for a further correction. If $18 is reached, the next target would be $18.5 with a strong resistance at $19.

Published on October 12, 2014

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