Gold listless as other markets party

Last week was a dull one for the yellow metal, with gold dropping by 0.8 per cent in the international market and closing at $1,288.91 per troy ounce, after the dollar stole the show.

Janet Yellen, the US Federal Reserve Chairperson, in her testimony to the Economic Committee of Congress, said the country’s economic data pointed to a steady revival.

This spurred sharp gains in the dollar index towards the later part of the week as the ECB President Mario Draghi also indicated that the bank will consider stimulus measures. The bank’s next policy meet is in June. The US dollar index, bouncing from the intra-week low, was 78.9 and closed at 79.9 on Friday. The number of individuals filing for jobless benefits in the US in the week ending May 3 fell by 26,000 to a seasonally adjusted 319,000. Analysts had expected claims to fall by 20,000.

Silver ended at $19.17 per ounce, down 1.7 per cent for the week. Platinum dropped 0.6 per cent to $1429.5 per ounce as the South African Platinum producers prepare to restart operations after a strike.

Reflecting the listless market, holdings at the SPDR Gold Trust — the world’s largest gold-backed exchange-traded fund — remained unchanged at 782.85 tonnes. Physical buying in China is reported to have slowed in the last few weeks. The weak currency is holding back buyers as imports have turned costlier. China's demand for gold bars fell by over 40 per cent in the first quarter of 2014.

Trades in bullion contracts on the futures exchange in the domestic market were dull last week with action shifting to the equity market.

On Friday, the bellwether stock indices touched a new high. MCX gold futures contract dropped 1 per cent to ₹28,525. MCX Silver was down 1.5 per cent at ₹41,453.

In the short term, gold prices will be dictated by developments related to the Russia-Ukraine crisis. Last week, Russian President Vladimir Putin pulled back his troops from Ukraine but reports say that the pro-Russia separatists continue to create tensions in the border.

As long as Ukraine tensions don’t dissipate, there will be some haven buying in gold. However, with analysts now calling a quicker increase in interest rates in the US, the risks of a correction in gold price remain.

Next week, the US economic calendar is heavy in the later half with jobless claims and consumer price index on Thursday and the housing starts number on Friday. If inflation numbers are higher than expected, then gold prices may fall as it opens gates for the Fed to increase interest rate.

This week will be action-packed with election results out on Friday, May 16. The equity market and the rupee will respond to FIIs building or reducing positions.

Thus positions in bullion contracts without a stop-loss can be a risky game. Last week, the rupee hit a high of 59.92 against the dollar and closed at 60.03 from 60.16 in the previous week. In the charts there appears a possibility of the currency weakening from current levels, should the poll outcome be adverse.

A weak rupee can support domestic market bullion prices. Another global factor that can bring the lost lustre to bullion is fresh tensions in Ukraine and the ensuing price increases in gold in the international market.

Gold rose sharply on Monday and tested a high of $1315.7, but then, it couldn’t hold on even for four trading days.

If the dollar continues to strengthen next week, gold can fall to $1280 levels — a key support zone. The upside target is at $1320.

MCX gold (₹28,525) is holding a tight range. Last week, the contract first hit the upside target indicated at ₹29,000 and then towards the weekend dropped to hit the support target at ₹28,400.

The contract has a key resistance around ₹29,250 levels. Unless this level is breached, it may not inch higher to ₹30,000. On the downside, the first support is at ₹28,400 and the next at ₹28,200. In the coming days, if these two supports are breached, the contract may slip further to ₹27,800.

MCX Silver (₹41,453) showed some momentum last week. It rose sharply to breach the resistance at ₹42,300 and hit ₹42,869. Now, the next target for it is ₹42,890. On the downside, the targets are ₹41,300 and ₹40,500.

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