Commodity Analysis

Gold set to revisit $1,300

Gurumurthy K | Updated on January 12, 2018 Published on June 04, 2017

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Weak US job numbers offer support to the yellow metal in the days ahead

After being stuck in a narrow range almost all the week, gold price got a boost in the final trading sessions on Friday. Global spot gold prices surged one per cent on Friday and closed the week on a strong note at $1,279 per ounce.

Silver, on the other hand, managed to sustain above $17 per ounce, in line with our expectations. It has closed at $17.55 per ounce, up 1.4 per cent for the week.

On the domestic front, gold futures contract on the Multi Commodity Exchange (MCX) closed the week at ₹28,871 per 10 gm, down 0.1 per cent. MCX-Silver futures contract however, managed to close slightly higher at ₹40,274 per kg, up 0.5 per cent for the week. The Indian rupee strengthening against the US dollar last week capped the gains in the domestic futures contract.

Weak US data

The strong rise in the global gold and silver prices on Friday came on the back of weak US job numbers. Although unemployment rate fell to 4.3 per cent from 4.4 per cent, non-farm payroll number failed to meet market expectations.

The US added 1,38,000 jobs in the month of May as against market expectation of an addition of 1,82,000 jobs. Even the payroll numbers for the previous two months (March and April) were revised lower, increasing the concerns of a slowdown in job growth. Employee wages also failed to show signs of picking up.

The slowdown in the job market has increased the expectation that the US Federal Reserve may want to wait and watch before it increases the rates. The next meeting is coming up on June 14.

Election week

With no major data release scheduled for this week in the US apart from the regular weekly jobless claims, all eyes will be on the upcoming elections in the UK on Thursday.

France is also heading for its National Assembly elections over the weekend on Sunday, June 11. The pre-election predictions show that Theresa May might not win a majority and there is a possibility of a hung parliament. The outcome of the UK election can usher in high volatility in global financial markets this week. If the US dollar gains after the UK elections, it could cap the upside in gold prices.

But charts indicate that the near-term outlook is weak for the dollar index (96.67) which has fallen 0.7 per cent last week. Immediate support is at 96.45. A strong break below this support can take the dollar index to 96 immediately. Such a break will also increase the likelihood of the index falling to 95 thereafter.

Such a fall in the dollar index may take gold prices higher in the coming days.

Gold outlook

The global spot gold ($1,279 per ounce) has immediate resistance at $1,282. A strong break above this hurdle can take the prices higher to $1,295 initially. Further break above $1,295 will increase the possibility of the up-move extending to $1,310. Key supports are poised at $1,270 and $1,260 which are likely to limit the downside. The outlook will turn negative only if gold declines below $1,260. But such a fall looks less probable.

MCX-Gold (₹28,871 per 10 gm) is range-bound between ₹28,500 and ₹29,000 over the last two weeks. The bias is bullish to break this range above ₹29,000 in the coming days.

Such a break can take the contract higher to ₹29,300 and ₹29,500. Further, a break above ₹29,500 will pave the way for the next target of ₹30,150. The contract will come under pressure only if it declines below ₹28,480 — the 21-day moving average. However, this looks unlikely. Targets below ₹28,480 are ₹28,150 or ₹28,000.

Silver outlook

Global silver ($17.55 per ounce) has reversed higher sharply after testing the psychological support level of $17 in the past week. Next resistance is in the $17.75-$17.80 region, which is likely to be tested this week. A strong break and a decisive close above $17.8 can boost the momentum and take silver prices higher to $18 or even $18.5 thereafter.

MCX-Silver (₹40,274 per kg) is facing resistance around ₹40,500.

A strong break above this hurdle can boost momentum and take the contract higher to ₹41,100 initially. A further break above ₹41,100 will see the upmove extending to ₹41,800 thereafter. Strong support for the contract is at ₹39,400 which needs to be broken to drag the contract to ₹38,500 or ₹38,350.

Published on June 04, 2017
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