Commodity Analysis

Gold shines on disappointing US data

Gurumurthy K | Updated on March 09, 2018 Published on September 04, 2016



But the presence of key resistances may keep prices under check in the short term

Gold prices, which have been trending down over the last couple of weeks and threatening to decline below the psychological $1,300 per ounce mark, found respite after a strong bounce-back on Friday. This was thanks to the weak US job numbers released on Friday, which dimmed the prospects of a US Fed rate hike. The global gold spot prices fell to a low of $1,302 on Thursday and reversed sharply higher, recovering all the losses made during the week to close at $1,325.

Prior to this reversal the yellow metal was trading under pressure as the dollar index had surged after US Federal Reserve Chair Janet Yellen’s Jackson Hole speech on August 26. Yellen had indicated that the case for the next rate hike had strengthened in recent months. This triggered expectations of a rate hike by the Fed in its September meeting. As a result, the US dollar index surged over a per cent from around 94.5 to 96. This, in turn, took the sheen off gold prices, which fell from a high of $1,340 to a low of $1,302 in the past week.

However, the US non-farm payroll for August, which increased by 1,51,000 as against market expectations of a rise by 1,81,000, eased the pressure on gold prices. The weak numbers have now diminished the possibility of an immediate rate hike in September. The next Fed meet is scheduled for September 21. However, the July payroll numbers being revised higher to 2,75,000 from 2,55,000 signals that the job market remains strong. This keeps the chance alive for one more rate hike by the end of this year. So, the bounce-back in bullion prices may be short-lived.

Among other precious metals, silver outperformed the others as it surged 4 per cent to close at $19.45 per ounce. Platinum closed in the red at $1,063 per ounce, down 0.93 per cent for the week.

On the domestic front, the gold futures contract traded on the Multi Commodity Exchange (MCX) fell to a low of ₹30,560 per 10 gm and recovered from there to close the week on a flat note at $30,920. The MCX-Silver contract, on the other hand, surged 4.6 per cent and closed at ₹46,015 per kg last week.

On the charts

The reversal last week from around the psychological $1,300 mark is a positive for gold prices. Immediate supports are at $1,321 and $1,316. A rise to $1,335 and $1,340 is possible this week. A strong break above $1,340 is required to ease the downside pressure. Such a break can take the yellow metal higher to $1,355 thereafter. A decisive weekly close above $1,355 will boost the bullish momentum and may wipe out the chances of a sharp fall.

In such a scenario, the gold price can rise to $1,375 and also test $1,400 or higher levels over the medium term.

On the other hand, if the prices fail to rise past $1,340 then a subsequent reversal can drag them lower to $1,320. Further break below $1,320 could increase the downside pressure and gold could revisit $1,300.

The 200-week moving average and a trendline support, both poised around $1,290, is a crucial support for gold. The outlook will turn bearish only if the yellow metal declines below $1,290. As long as gold stays above $1,290, prices can oscillate in a sideways range between $1,290 and $1,375 for some weeks.

On the domestic front, the MCX-gold futures contract has reversed higher from a very important support level of ₹30,500, which is the 21-week average as well as a trendline support for the contract. It has to sustain above this support to keep the momentum intact. Key resistances are at ₹31,200 and ₹31,600. A strong break above ₹31,600 will ease the downside pressure and take it higher to ₹32,000 and ₹32,500 once again.

On the other hand, if the MCX contract breaks below the crucial support at ₹30,500, it will increase the possibility of a fall to ₹30,000 and ₹29,500.

MCX-Silver futures contract has resistance at ₹46,350 per kg. Inability to break above this hurdle can trigger a pull-back move to ₹44,750. But a strong break above ₹46,350 can take the contract higher to ₹47,500 and ₹48,000 once again.

Published on September 04, 2016

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