Commodity Analysis

Gold to gain on weak US data

Rajalakshmi Nirmal | Updated on January 22, 2018 Published on October 03, 2015

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Job market turns weaker; debt ceiling likely to be hit sooner than expected

Gold prices shot up on Friday after weak US employment data made investors increase the bets on a delay in rate hike by the Federal Reserve. The yellow metal dipped to a low of $1,110/ounce on Thursday and ended the week marginally negative at $1,138.6/ounce.

The US economy created 1,42,000 jobs in September against expectations of 2,04,000 new jobs. Job gains in July and August were also revised sharply down.

Silver closed at $15.258/ounce, up 0.9 per cent. However, platinum continued to witness selling pressure and ended at $910/ounce, down 3.9 per cent for the week.

The US dollar index closed in the red at 95.917, down 0.3 per cent.

On Wednesday, the People’s Bank of China said that it added 16 tonnes of gold to its reserves in August.

In July, too, the central bank had bought 19 tonnes of gold. The news, however, did not impact gold prices.

Cues to watch

The reversal in gold prices last week is a positive. It can now go up to test $1,200 in the coming weeks. There are a couple of reasons for this.

One, the weak jobs data has cast a shadow on the growth of the US economy.

Between January and September last year, the US economy added 2,38,000 jobs on an average every month, but this year the average monthly gains have been only 1,98,000.

Two, there is a fear that the US may hit a debt ceiling sooner than expected.

Last week, the US Treasury Secretary said that the US government will not be able to borrow more money by November 5.

Now, with just a month left for the Congress to hike the debt ceiling, the uncertainty in the markets leading to this decision will help gold prices.

In 2011, when there was a similar situation, Standard & Poor’s downgraded US credit rating, triggering a fall in stock markets.

The FOMC meeting’s minutes will be released on Thursday.

This will be of great interest to gauge why the Fed postponed rate hike decision at the last meeting.

International trade data is likely to be released on Tuesday. Gold investors, however, need to be cautious and keep an eye on the dollar and also crude prices.

Consumer prices in the Euro Zone fell in Septemberby 0.1 per cent from a year earlier on lower energy prices, re-kindling fears of deflation.

Now, expectations are that the ECB may extend its QE program beyond 2016.

Indian gold market

The gold and silver futures contract traded in the domestic market recorded losses last week following the rupee’s appreciation against the US dollar.

Rupee ended at 65.51, up from the previous week’s close of 66.16. MCX gold futures closed at ₹25,773, down 3.6 per cent. MCX Silver futures closed at ₹34,544, down 4.2 per cent.

This week, if rupee makes further gains, bullion contracts may lose further.

But if international gold prices are up, it may null the impact of a stronger rupee.

MCX gold may move down targeting ₹25,000 levels. First support for the contract would be at ₹25,200. Resistances are at ₹26,000 and ₹26,500.

MCX Silver looks bearish on the chart. If it cuts below ₹34,000, it may go down to even ₹33,000.

Published on October 03, 2015
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