White metal breaks out of a range

Gold prices surged last week with worries of flagging US economy rattling investors again.

The yellow metal advanced 4 per cent and ended at $1,318.6 an ounce on Friday. Silver and platinum too made gains, tracking gold prices. Silver rallied 7 per cent to $21.50/ounce while platinum moved up 3 per cent ending the week at $1427.7/ounce.

Key US data

On Friday, data showed that the US factory output dropped 0.8 per cent in January, the biggest fall in the last four-and-a-half years.

Apparently, signals from other data points are also not encouraging. The Department of Labour has reported that the number of Americans who filed for jobless assistance in the first week of February rose by 8,000 against an expectation of a drop by 1,000, indicating an increase in layoffs by US employers. However, some believe this could be because of the extreme weather conditions in the last two months.

Slide in the US currency also helped gold’s supporters. Last week, the US dollar index that measures the value of the greenback against six major currencies dropped 0.6 per cent to 80.69, improving gold’s appeal as a hedge.

The largest gold-backed exchange-traded fund — SPDR Gold Trust — has reported inflows of 10.79 tonnes of gold since the beginning of February. The fund’s holding stands at 801.25 tonnes. The US Mint has reported a 63 per cent surge in gold coin sales in January to 91,500 ounces.

Domestic market

Back home, MCX gold futures settled 2.4 per cent higher at ₹29,375/10 gram last week. MCX Silver gained five per cent and ended at ₹46,613/100 gram on Friday.

Gold bar premiums in India are at $65 per ounce, lower from $75/ounce three weeks ago.

However, MCX gold futures crawled up and hit a high of ₹29,425/10 gram, ending the week at ₹29,375.

A stronger rupee kept the gains under check. The rupee hit a three-week high against the US dollar on Friday. Encouraging trade deficit data and a weaker US currency helped. On Friday, the rupee closed at 61.9 against the US dollar from an opening at 62.29 in the beginning of the week. Trading interest in gold futures, however, dropped during the week.

Average daily turnover in MCX gold futures was ₹4,705 crore, down 19 per cent over the last one month’s average daily volumes. In MCX Silver, the average daily turnover during the week was ₹4,367 crore, a 13 per cent fall from the previous 30 days’ average.

Cues to watch

Last week, the pessimism around the US economy hit traders who were long on the US currency. Negative data from the Labour Department and a disappointing retail sales number saw the dollar take a pounding.

The US dollar index hit a low of 80.065; however, it closed a tad higher at 80.69. Now, it is estimated that the fourth quarter GPD growth may come around 2.3-2.4 per cent against the expected 3.2 per cent growth.

The second estimate of the fourth quarter GDP is expected to be out on February 28.

Though the new Fed chief Janet Yellen has assured that there will be no fast-tracking of stimulus roll-back, data releases in the coming weeks will be crucial. Next week, the US markets are closed on Monday for President’s Day. On Wednesday, minutes of the US Federal Reserve’s last meeting will be released.

The housing starts data and producer price index are also expected on the same day. Analysts expect housing starts — the data on new residential buildings in the state — to decline 4.9 per cent in January following an unusually cold weather. In December, housing starts decreased 9.8 per cent after rising over 23 per cent in November. On Thursday, the US Labour Department will release the consumer price index and data on jobless claims.

Unemployment claims are expected to fall to 333,000 from the previous week’s 339,000.

What the charts say?

Last week, gold broke above its 200-day moving average at $1,312/ounce. The metal now appears to be heading towards $1,340 and $1,355. Given that there is formation of a double bottom pattern in the chart there is room for further upside.

However, the metal should rise and hold above $1,400 before the medium-term trend turns positive. MCX gold (₹29,375) may however, remain range-bound till it cuts above ₹30,000.

On the downside, the supports are ₹29,000 and ₹27,900. MCX Silver (₹46,613) made a breakout last week moving above ₹44,500-45,000 levels. In the coming week it can move further up towards ₹49,112. Supports are at ₹45,692 and ₹44,900.

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