Commodity Analysis

Gold reverses on weak US data

Gurumurthy K | Updated on January 24, 2018 Published on February 01, 2015



The yellow metal prices in India can rally due to weakness in the rupee

It was a volatile week for the yellow metal. The global spot gold price failed to gain momentum and continued to trade below $1,300 an ounce all through the week. A slew of good economic data releases from the US kept the price under check.

The US new-home sales increased 11.6 per cent in December to 4,81,000 from 4,31,000 the month earlier. Consumer confidence surged to 102.9 in January, the highest since August 2007, from 93.1 in December.

Although the US Federal Reserve reiterated its stance to “be patient” in beginning the rate hike, the market was cautious as the Fed stated that an early rate hike is possible if the economic condition picks up faster than anticipated. The dollar has begun to gain ground on the Fed stance and started to push the gold price lower.

The pressure on gold price mounted on Thursday after the US initial jobless claims tumbled to 2,65,000 from the previous week’s 3,08,000. Following this, gold price fell to a low of $1,252 on Thursday. However, this decline was short-lived, thanks to weak US GDP data, released on Friday. The US economy grew at a slower pace of 2.6 per cent in the fourth quarter of 2014, while the market was expecting a growth rate of 3 per cent.

This triggered a sharp reversal and gold shot up to close the week at $1,283.79 on Friday.

This week is also packed with a series of important economic data releases from the US. The week will begin with the Institute of Supply Management (ISM) Manufacturing index and the personal income and consumption expenditure data. The usual weekly jobless claims will be released on Thursday. The much-watched US non-farm payroll and the unemployment rate will be released on Friday. Other precious metals also reversed higher in the final trading sessions of the week after weak US GDP data release. Silver rebounded from the low of $16.75 an ounce to close the week at $17.25.

Platinum, on the other hand, reversed from its low of $1,213 an ounce to close at $1,241.56 on Friday.

On the domestic front, the gold and silver futures contract traded on the Multi Commodity Exchange (MCX) moved in tandem with the global spot price. Both contracts fell during the week and reversed sharply higher in the final sessions on Friday, taking cues from the reversal in the global prices. MCX-gold closed the week at ₹27,895 per 10 gm and MCX-silver ended at ₹38,105 per kg on Friday.

On the charts

The sharp reversal on Friday in the global spot gold price is technically very significant as it has happened from the 200-day moving average support at $1,252.51. Immediate resistance is at $1,285 and a strong break above this level can take the bullion price higher to $1,307 – the 100-week moving average resistance and even to $1,317 – a trend line resistance in the coming week.

This level of $1,317 is a crucial hurdle for gold, which will need a close watch. On the other hand, inability to sustain higher above $1,300 could trigger a fall to $1,270 and $1,250 once again.

On the domestic front, the MCX-gold futures contract has also reversed sharply higher last week from its 200-day moving average support at ₹27,334 per 10 gm.

On the charts, there is no danger of an immediate fall. Immediate resistance is at ₹28,000. A strong break and a daily close above this psychological level can take the contract higher to ₹28,265 – the 100-week moving average resistance level.

A strong break above this level will open doors for the next targets of ₹28,500 and even ₹29,000. The Indian rupee, which lost ground last week, could also aid a rally in the domestic price if the currency continues to stay weak.

The short-term outlook for the contract will turn bearish only on a fall below the 200-day moving average support level of ₹27,344. The next targets will be ₹26,900 and ₹26,700.

MCX-silver, on the other hand, is not looking as strong as gold. If it can sustain higher above ₹38,000, it can rise to ₹38,650 and ₹39,000 this week. Inability to gain momentum could add pressure on the contract. A key support level to watch is ₹37,000.

A strong break can drag it to ₹36,500 and even to ₹35,900.

Published on February 01, 2015
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