Commodity Analysis

Gold loses glitter on strong US data

Gurumurthy K | Updated on November 25, 2017 Published on August 31, 2014

The Fed can increase the interest rate earlier than expected, dimming prospects for the yellow metal



Renewed tension between Russia-Ukraine lifted gold prices last week. It recovered from a low of $1,274.5 per ounce and closed at $1,287, up 0.5 per cent for the week. Gains could have been higher but strong US GDP numbers strengthened the dollar and pushed gold lower from its intra week high of $1,296.6.

The US reported a growth of 4.2 per cent in the second quarter of 2014, up from the 4 per cent advance estimate released in July.

Silver and platinum also took cues from gold and fell from their respective intra-week highs of $19.9 per ounce and $1,431 per ounce. Silver closed for the week at $19.46 while platinum ended at $1,424.

On the domestic front, since the rupee was broadly range-bound through the week, the domestic gold price moved in tandem with global price.

Spot gold (of 24 karat) price moved up 0.8 per cent last week to ₹2,792/gm from ₹2,769 in the week earlier.

The MCX-gold futures closed for the week at ₹27,996/10 gm and the MCX-silver futures have closed at ₹42,255 a kg. Apart from GDP, other data releases from the US were also positive. The US consumer confidence rose to 92.4 in August from 90.3 in July.

Strong US data

Durable goods order surged by a record 22.6 per cent in July and the initial jobless claims fell by 1,000 to 298,000 for the week ended August 23.

The series of good US data releases in the recent time has increased the chances of an early interest rate hike by the Federal Reserve.

With a surge in value to 82.74 last week, the US dollar index is targeting 84.5 in the medium-term. This suggests that any rally in the gold price would be short- lived and a further fall is on the cards.

Following the strong data releases in the past week and a long weekend (the US markets are closed on Monday on account of Labour Day holiday), the US will begin the week on Tuesday with the ISM manufacturing PMI data. Following this, the weekly jobless claims and trade balance data are due on Thursday. Market’s much watched non-farm payroll and unemployment rate data are due on Friday. The other key event would be the European Central Bank meeting on Thursday. If the ECB announces any stimulus, it would trigger a rally in the dollar and push gold lower. The developments in the Russia-Ukraine conflict also need a close watch. This will be the only factor that could aid the gold price to move higher. On the domestic front, if the rupee continues to remain range-bound, then the gold prices will largely follow the trend in international price.

On the charts

The psychological level of $1,300 will be a key resistance for gold. Inability to breach this level will keep it pressured on the downside. Declines below $1,265 can drag the metal to $1,250. For the MCX-gold, the 21-day moving average at ₹28,201 is a key resistance. A strong break above this level can take it to ₹28,500 and ₹28,650. Support is at ₹27,700, a fall below can take it to ₹27,435 — the 200-week moving average support level. MCX-silver is stuck in a sideways range between ₹41,780 and ₹43,050/kg in the last two weeks. A breakout on either side of this range will decide the next leg of move .

Given that the preceding trend is down, the probability is high for a bearish break below ₹41,780 which can pull it down to ₹41,450 and even to ₹41,000 in the coming week. On the other hand, a strong break above ₹43,050 can take the contract higher to ₹43,450.

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