Commodity Analysis

Rough ride ahead for bullion investors

Rajalakshmi Nirmal | Updated on January 22, 2018 Published on September 20, 2015

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With the Fed deferring its rate action, uncertainty continues for precious metals



Precious metals won a reprieve this week after the US Federal Reserve voiced concerns about the weakness in the global economy and left its rates unchanged. Gold ended at $1,139/ounce, up 2.8 per cent for the week. Platinum closed at $981.8/ounce, up 1.2 per cent. Silver gained about 3.8 per cent closing at $15.17/ounce.

While the US unemployment rate fell to the central bank’s target of 6.5 per cent more than a year ago and is now at 5.1 per cent, still-low inflation, sluggish wage growth and the mayhem in global financial markets saw the Fed defer rate hikes. However, given that pressures are mounting on the central bank to lift rates, there is expectation of one rate hike of at least 25 basis points before end of the year.

The central bank increased its expectations for US economic growth in the current year to 2.1 per cent, from 1.9 per cent earlier and lowered its projection for the unemployment rate to 5 per cent. The week’s events saw gold premiums in China staying at around $4 to $5/ounce. In India, however, gold prices were at a discount to international market prices at $6/ounce, not much changed from a week ago. The US dollar index closed at 95.148, marginally lower than the previous week.

Cues to watch

This week is going to be packed with crucial data releases in the US. It starts with existing home sales number on Monday. On Thursday is the release of durable goods orders, weekly jobless claims and new home sales data. On Friday is the release of the final second quarter GDP numbers. Analysts are expecting the growth to be three per cent plus — the consensus range is 3.5 to 4.1 per cent.

Also important this week will be the Chinese manufacturing data release on Wednesday. Some economists expect an improvement in China’s August PMI with projections between 47.3 and 49.6. July’s reading of 47.8 was a two-year low.

Events this week have extended the period of uncertainty for gold investors. Gold may stay depressed in the run-up to the rate hike, but may, three-to-six months into the up-cycle, trend up. However, for now, gold is searching for a floor and the rate hike, whether it materialises in October or December, may again create downward pressure on the metal. If gold shows strength and climbs past $1,150/ounce, it can gain further to a target of $1,190/ounce in the coming weeks. If not, it can move down to test the support at $1,100/ounce again. For the next few months investors need to be on guard, as bullion markets may see more volatility.

Profits for domestic investors

Gold and silver futures contracts in the domestic market made a profit for investors despite a strong rupee. The rupee appreciated sharply against the dollar last week, after the latter lost some sheen.

MCX Gold closed at ₹26,469, up 1.9 per cent for the week. MCX Silver ended at ₹36,077, up three per cent.

MCX Gold may move in the range of ₹25,500 and ₹27,000. On the higher side, the first resistance from here would be ₹27,000 and the next at ₹27,600. Downside, the supports are at ₹25,900 and ₹25,500.

MCX Silver may now move up to ₹37,000 levels. However, that requires a strong international price. Supports for the contract are at ₹35,500 and ₹34,500.

Published on September 20, 2015
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