Commodity Analysis

US data dulls gold’s glitter

Rajalakshmi Nirmal | Updated on March 12, 2018 Published on March 02, 2014

Losing steam China's demand has dropped. JACK.Q/SHUTTERSTOCK


It was a mixed week for gold. The yellow metal crawled up to a high of $1,345.5 an ounce on Wednesday helped by weak reading in the US consumer sentiment index. But the metal withdrew from higher levels on news of new home sales in the US hitting a five-and-a-half year high. Spot gold logged a small gain of 0.16 per cent and closed at $1,326.4 an ounce. Silver, however, closed with a loss of 2.6 per cent at $21.23 an ounce.

Platinum ended at $1,446.25 an ounce, recording a gain of 1.2 per cent. This follows the five-week-long labour strike at South Africa’s Impala Platinum Holdings — the world’s second largest producer of platinum.

Last week, the US fourth quarter GDP growth was revised downwards to 2.4 per cent from the initially estimated 3.2 per cent. This is lower than last week’s estimate of 2.5 per cent. Also, during the week ended February 22, the number of people filing for unemployment benefits increased by 14,000 to 3,48,000.

Analysts predicted claims to rise to only 3,35,000.

The US dollar index that measures value of the greenback against a basket of major currencies slid below 80 and closed the week at 79.691, down 0.6 per cent.

The greenback was sapped by the weak economic data from the US and also on strengthening euro. On Friday, the US dollar dropped to a two-month low of 0.724 against the euro as it was reported that inflation in the Euro Zone stabilised at 0.8 per cent in February and didn’t fall as expected.

This drove away fears of any ‘stimulus’ action from the European Central Bank in its policy meeting on March 6. Volumes in gold futures dwindled from the highs of the previous week.

The average daily turnover in MCX gold futures was ₹4,660 crore, down 22 per cent. In MCX silver futures, volumes were marginally higher.

MCX gold futures settled at ₹30,090/10 gm on Friday, up 0.6 per cent after hitting a high of ₹30,267 on Tuesday. MCX silver futures were down 2.3 and closed at ₹46,362/100 gm, though intra-week it hit a high of ₹48,343. The rupee gained against the US dollar and checked gains on bullion contracts. It ended at 61.75 against the dollar from 62.05 last week.

However, traders need to keep an eye on the rupee this week. At 4.7 per cent, third quarter GDP growth has come lower than expected. This was announced after the market close on Friday and currency traders will take note of this in Monday’s trade.

Cues to watch

India’s fiscal deficit for the 10 months till January 2014 has overshot estimates given by the Finance Minister in the vote-on-account two weeks back for FY14. There is little chance of the Government rolling back import restrictions on gold for now.

Despite gold moving past a few key resistances (at $1,300 and $1,333), there is strong likelihood of a pull-back.

Physical buying of gold in China — the world’s largest gold consumer last year — has slowed. Premium on Shanghai Gold Exchange is reported to have fallen after the Chinese New Year.

With yuan plummeting against the dollar gold prices are up in yuan terms. This could be a reason why Chinese buyers are keeping away from gold.

However, institutional investors are appearing bullish. The holdings of the SPDR gold trust — the world’s largest gold-backed exchange-traded fund — increased 5.39 tonnes last week to 803.70 tonnes.

Next week will be action packed. On Thursday, March 6, the ECB’s policy meeting is scheduled. Any key decision by the ECB could impact the euro, consequently the dollar, and also gold. On the same day, the jobless claims data of the US will also be released. On Friday, the month’s non-farm payrolls, unemployment rate and worker’s hourly earnings are due for announcement in the US.

Economic developments over the next few weeks would be free of distortions from cold weather and will be important in deciding the Fed Reserve’s move in the meeting on March 19. Also, watch for developments in Ukraine, if protests continue, gold may see some haven demand.

What the charts say

Gold didn’t manage to stay above channel resistance at $1,345/ounce levels even for a day. This raises doubts over the strength of the uptrend.

Prices may move sideways for some time now and witness a pull-back.

On the downside, supports are at $1,300 and $1,289. However, if it manages to cut $1,345-50, some gains can be seen.

MCX gold (₹30,090) has been trading in a tight range. Despite intra-day forays above ₹30,000, it is unable to hold above that level. Supports are at ₹29,635 and ₹29,500. Upside targets are ₹30,360 and ₹30,740.

In MCX silver (₹46,362), the short-term uptrend is under threat. The gap in the daily price chart was filled last week.

Supports are at ₹45,692 and ₹44,900. A surprise rally can take the price to ₹48,000.

Published on March 02, 2014

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