Commodity Analysis

Bullion could build on its gains

Gurumurthy K | Updated on January 24, 2018 Published on March 28, 2015



A weak dollar and unrest in West Asia could help the yellow metal

The pressure seems to be easing on gold prices as the yellow metal extended its rally to close higher for the second consecutive week. Global spot gold prices opened the week at $1,182.53 per troy ounce on Monday. The US dollar index falling to 96.2 from 98 levels helped push bullion prices higher towards the psychological $1,200 mark by Wednesday.

The trigger for breaching this barrier came on Thursday from Saudi Arabia launching air strikes on Yemen. The re-appearance of geopolitical risks triggered a bout of risk aversion which helped bullion prices surge to $1,219.8 on Thursday. However, gold gave back some of its gains in the final trading sessions as the dollar index managed to claw back from its lows. But gold closed the week on a positive note, at $1,198.55, up 1.35 per cent.

Silver surged too, to record an intra-week high of $17.4 per ounce before closing at $16.96, up 1.25 per cent for the week. But platinum gave back intra-week gains and fell sharply from $1,164.62 per ounce to close flat at $1,138. Its back to being gold’s poor cousin now.

Interestingly, while tensions in West Asia may have spurred speculative buying, holdings at the world’s largest gold backed ETF, SPDR Gold Trust’, didn’t show any material accretion and fell for the fourth consecutive week. This is in spite of the bullion price surging over 3 per cent in the last two weeks. Its gold holdings fell to 737.24 tonnes last week from 744.4 tonnes a week earlier.

On the domestic front, the gold futures contract traded on the Multi Commodity Exchange (MCX) ended up by 1.5 per cent last week at ₹26,569 mirroring global trends. The silver futures contract moved in step, closing at ₹38,395, up 1.6 per cent for the week.

Cues to watch

While further developments on the Saudi air strike on Yemen will be the key factor to watch, there are a few economic data releases lined up from the US this week that could influence gold price movements. Personal income and personal consumption expenditure data release is scheduled today (Monday). This will be followed by the Manufacturing Purchasing Managers Index on Wednesday and the weekly jobless claims the next day. Thursday will also see the release of the US trade balance data which will need a close watch.

With the Federal Reserve fretting about weakening US export growth in its recent review, this has become a key factor to watch if one is looking for signals on US rate hikes. A strong pick-up in US exports in the coming months could be negative for gold prices. The week will end with the release of the much-watched US unemployment numbers on Friday.

On the charts

The inability to sustain above the psychological $1,200 mark last week is not all that negative for gold prices, at least from a technical perspective. There is support for prices at $1,191, though this can be tested during the week. But there may be limited downside for gold in the short term. A reversal from this support can take the price higher to $1,210 and $1,220 once again. A further break above $1,220 will open the doors for the next target of $1,238.

On the domestic front, the MCX Gold futures contract has immediate support at $26,400.

A reversal from here can take the contract higher to ₹27,000 this week and then to even ₹27,300. A break below ₹26,400 if it materialises can drag the contract lower to ₹26,150 which is the 21-day moving average support level. A decisive break below ₹26,150 looks less probable on the charts.

MCX-Silver futures contract has support at ₹38,000. As long as the contract trades above this support, a rally to ₹39,000 and ₹39,300 — the 200-day moving average resistance level looks likely in the coming days. This bullish outlook will get negated if the contract declines below ₹38,000. In such a scenario, the contract can fall to ₹37,000 or even ₹36,500.

Published on March 28, 2015
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