Commodity Analysis

No cheer yet for gold

Rajalakshmi Nirmal | Updated on January 22, 2018 Published on September 27, 2015

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Markets expect a Fed rate hike before end of year



In the action-packed week, gold closed marginally higher at $1,146/ounce and the US dollar index ended 1 per cent up at 96.23. The yellow metal made gains in the initial part of the week after disappointing PMI data from China (down to a six-year low) and the Fed’s deferral of its rate hike.

But it lost ground after Janet Yellen in her speech on Thursday indicated a hike before end 2015. Stronger than expected US GDP data on Friday was also a disappointment for gold bulls.

The final estimate of the second quarter GDP growth came in at 3.9 per cent versus earlier estimate of 3.7 per cent helped by higher consumer spending, which grew 3.9 per cent.

The Federal Reserve revised its growth estimates higher for 2015 to 2.5 per cent, up from its June projection of 1.9 per cent. Silver closed marginally down at $15.11/ounce for the week.

Platinum closed in the red after falling a sharp 3.5 per cent to $946.5/ounce mainly after the Volkswagen emission scandal.

The worry is that car buyers may now switch from diesel cars to electric or gasoline cars to reduce emissions. Platinum is extensively used in catalytic converters in diesel engines.

The US SPDR Gold Trust, the largest gold backed exchange traded fund, saw holdings rise by 5.96 tonnes to 684.14 tonnes.

Demand for gold in the physical market may go up in the next few months given that China is just flagging of the ‘golden week’ in October with preparations for the New Year under way.

Data from the Census and Statistics Department of the Hong Kong Government showed last week that China imported 59.3 tonnes of gold from Hong Kong in August, double last year’s imports.

In India, too, analysts see gold demand going up next month with the festival season set to commence. In the spot market in Mumbai, gold discounts widened. The metal traded at a discount of $6.75/ounce to international prices on Thursday.

Cues to watch

The Federal Reserve has indicated that it will continue to monitor data and effect one rate hike before end of the year. Stable inflation and improved prospects in the job market, Yellen said, will be key to a decision to hike rates.

In her speech on Thursday she stressed that it is only the cheaper oil and the strong US dollar that are keeping inflation under check. However, there are still doubts about the timing of Fed’s first rate hike.

Some central banks which were sitting on the fence jumped in to trim rates last week. This includes Norway, Ukraine and Taiwan.

In the week ahead, US ISM Manufacturing Index data and jobless claims number will be out on Thursday. This will be followed by the employment situation data on Friday.

The unemployment rate is expected to be steady at 5.1 per cent.

From a technical viewpoint, gold breaking the $1150 resistance and hitting high of $1156 last week is a positive. However, as prices saw a pullback and closed below $1,150/ounce, there are doubts about the strength of the rally.

This week, if the metal manages to crawl up past $1,150/ounce mark again, it could move to the target of $1,164.

However, if it drops below $1,121/ounce, it may slip further to the support around $1,100.

Rupee, the wild card

Domestic market investors in gold saw higher gains relative to their counterparts in the international market.

MCX gold futures contract was up 1 per cent last week at ₹26,734. This was thanks to the weak rupee.

The currency dropped to 66.15 against the US dollar, from 65.67 in the previous week. MCX Silver, however, closed in the red tracking global prices at ₹36,072. This week, MCX gold may show some muscle to rise further and cross ₹27,500 levels. On the downside, the first support will be at ₹26,000 and the next at ₹25,500.

MCX Silver may continue to trade in a range-bound fashion moving between ₹35,000 and ₹36,500 levels.

Published on September 27, 2015
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