Commodity Analysis

Greece stalemate revives gold

Rajalakshmi Nirmal | Updated on January 24, 2018 Published on June 20, 2015



Stalling Greece debt talks and a pessimistic Fed helped gold bounce back from below $1,200/ounce. The trend may sustain

The last two years have been very challenging for gold investors with a panic sell-off in gold ETFs globally. But rallies like the one last week help re-establish the metal’s defensive nature. After looking in danger of breaking down, gold rallied to $1,205.8/ounce last week and closed finally at $1,200.3/ounce, up 1.6 per cent for the week.

The deadlock in Greece’s debt talks and the Federal Reserve offering a less optimistic view on the US economy helped bullion. Silver closed with a gain of 0.8 per cent at $16.11/ounce.

The Federal Reserve in its policy meeting indicated that it won’t raise rates until further improvement is seen in the labour market. It also said that it may keep rates close to zero for a long time even if it begins the increasing cycle.

Earlier, economists expected at least two-three rounds of rate hikes from the Fed in 2015, which stoked fears of US funds fleeing back to the home country. So, the dollar rallied and gold lost sheen. But the Fed’s latest statement suggests that there will be only one rate hike and that too towards the end of the year. This is a positive for gold.

The US dollar index, which has already dropped in the last few weeks, may continue to slide. One, the Fed has expressed concerns on the US economy’s health and two, the euro is strengthening.

Despite concerns about Greece, the euro has been moving up against the dollar in the last few weeks as fundamentals at Euro Zone are improving.

What the charts say

Gold’s decisive break above the $1,200 level is a very positive sign. In the coming weeks, the metal can move further up to test $1,210 and $1,240 levels. But be prepared for a bout of volatility as key data releases are expected in the US over the next two weeks. If $1,240 is crossed, it would validate strength in the trend and the metal could go up further. However, if there is a pullback, the first support will be $1,197 and the next at $1,184.

Domestic investors

MCX gold and silver futures contract gained only marginally as a stronger rupee spoiled the party. MCX gold closed at ₹27,081, up 0.7 per cent and MCX silver closed at ₹36,680, up 0.2 per cent. Rupee moved sharply up against the US dollar and closed at 63.565.

In the coming week, MCX gold could edge up to ₹27,500 if it crosses the resistance at ₹27,200 without trouble. On the lower side, the first support is at ₹26,800 and the next at ₹26,500.

In MCX silver, there is immediate resistance at ₹36,800. If this is crossed, it can move further to ₹37,500. However, if the contract reverses from here, it will see the first support at ₹35,000.

Published on June 20, 2015

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