Commodity Analysis

Weak dollar boosts bullion

Gurumurthy K | Updated on January 23, 2018 Published on May 17, 2015



Gold prices could move higher as the greenback remains under pressure

It was a spectacular week for the yellow metal. Global spot gold price witnessed a sharp 3 per cent rally in the past week, its biggest since January. It went on to close on a strong note above the psychological $1,200 per ounce mark at $1,224.

Among the other precious metals, silver price rallied 6.3 per cent to close at $17.5 per ounce and platinum was up 2.3 per cent and has closed at $1,168 per ounce.

On the domestic front, the gold futures contract traded on the Multi Commodity Exchange (MCX) rose 2.1 per cent to close at ₹27,463 per 10 gm. The strength in rupee was neutralised by the sharp rally in the global spot gold price. The silver futures contract was up 5.3 per cent and closed at ₹39,951 per kg.

Weak dollar supports rally

The rally in the yellow metal was triggered by the sharp fall in the dollar index last week.

The index, which was hovering at 95 levels in the initial part of the week, tumbled to record a low of 93.13 before closing at 93.23 on Friday, down 1.6 per cent for the week. The dollar index has closed in the negative for the fifth consecutive week, its longest consecutive weekly declines in four years.

Weak economic data releases from the US roiled the dollar index. The initial trigger came from the retail sales data which remained unchanged for the month of April as against the market expectation for a 0.3 per cent rise.

The industrial production data that was released on Friday has further stoked concerns on the US economic recovery.

The industrial production in April fell for the fifth consecutive month to 0.3 per cent from the previous month. These weak economic data releases suggesting a sluggish recovery in the US economy have increased the chances of the US Federal Reserve displaying more patience in commencing interest rate hikes. As a result the dollar index took a strong beating last week.

The coming week is also packed with a few key economic data releases which could influence the dollar movement which, in turn, could impact gold prices. The housing starts data is due on Tuesday and the existing home sales data will released on Thursday. The slow recovery in the US housing sector is one of the major concerns of the Federal Reserve. A negative housing data this week could put the dollar under more pressure and drag it further lower. This in turn could push the bullion prices further higher in the coming days. The minutes of the Federal Reserve’s April meeting which will be released on Wednesday will also be a key event to watch that could influence the gold movement.

On the charts

Global spot gold price has recorded a strong close last week above the 100- and 200-day moving averages.

The sharp and immediate recovery after an intraday fall to test the 100-day moving average at $1,211 is a positive. It also reflects buying interest in the market at lower levels.

The outlook is bullish. The price can rise further to $1,240 in the coming week.

A further break above $1,240 can take the bullion price higher to $1,265 there after.

The dollar index appears weak and is vulnerable to a fall to 92.5 and even 92. Such a fall can help the bullion price move higher to the above mentioned levels.

The MCX-gold futures contract has recorded a strong close above ₹27,000 – a resistance that was thwarting rallies in the contract for more than a month. This level will now act as a good support for the contract.

A rise to ₹28,000 looks likely this week. A break above this level will take the contract to the next target of ₹28,500.

The outlook will turn negative if the contract declines below ₹27,000 and the next target will be ₹26,500.

MCX-Silver on the other hand, has a key support at ₹39,250.

As long as it trades above this level, the current rally can extend to the next targets of ₹40,750 and ₹41,000.

Published on May 17, 2015
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