Gold back in spotlight

Gold prices were pushed higher on dovish comments in US Fed minutes and likelihood of renewed geopolitical tensions



Gold inched up 1 per cent to $1,318.4 per troy ounce last week. The yellow metal benefited from indications, in the minutes of the Fed’s March meeting, that interest rates might not rise as early as expected.

A higher interest rate is detrimental to gold, which is a non-interest bearing asset.

Immediately after the release of the minutes, gold hit a high of $1,324.61 and the American dollar index slipped to a low of 79.33. The US dollar was also weakened by the sell-off in Wall Street. The S&P 500 index suffered a loss of 2.6 per cent last week.

The euro gained 1.3 per cent against the US dollar and ended at $1.3885. The euro was helped by an ECB official’s comment that the bank is not in a hurry to announce measures to counter disinflation in the Euro Zone.

The yellow metal ignored the news of a drop in the US unemployment claims to near seven-year lows. Initial jobless claims fell by 32,000 to 3,00,000 — the lowest level since May 2007, in the week ended April 5.

However, gold funds continued to report outflows.

The SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, saw its holdings drop to 804.42 tonnes on Friday, down from 809.18 tonnes a week earlier.

Domestic market

A weak rupee is just what the doctor ordered for gold. Last week, as the rupee slid from levels of 60.08 to 60.17 against the US dollar, gold prices in the domestic market got a lift.

The MCX gold futures contract logged a gain of 1 per cent to end the week at ₹28,756 after hitting a high of ₹28,844 — a key resistance level. MCX silver futures managed just a 0.4 per cent gain at ₹43,177.

The rupee suffered loss on higher demand for dollars from importers and banks.

On Friday, the Commerce Ministry reported that the country’s gold and silver imports fell by a sharp 40 per cent in 2013-14 to $33.46 billion. But with the Government allowing five more private banks to import gold last month, bullion imports for March were only 17 per cent lower than in the previous year.

Cues for next week

Gold prices may move up further in the coming week if the US stock indices continue to slide. With Russia warning Ukraine and the EU that it would cut off gas supplies, it looks like geopolitical tensions might escalate in the coming weeks and stoke demand for the safe haven — gold — again. However, do keep a tab on data points.

Next week is going to be packed with several data releases in the US. On Monday, retail sales data is expected. This will be followed by Consumer Price Index on Tuesday and housing starts and industrial production data on Wednesday.

On Thursday, the customary weekly jobless claims data will be released. Domestic market investors should keep their eyes fixed on the rupee.

With polling already over in many States and election results drawing closer, there may be more volatility in the rupee and the stock market. So, trade with strict stop loss.

Charts

As indicated in this column last week, gold made a breakout above $1,320 last week. So the upside target of $1,348 is still open. Beyond $1,320, the first target will be $1,328. On the downside, the supports are $1,312 and $1,277.

MCX gold future needs to break the barrier at ₹29,000 to move further up. The near-term resistance levels are at ₹29,000 and ₹30,000. Support levels are ₹28,000 and ₹27,800.

In MCX Silver futures, bulls need to move past ₹44,000 for the bullish trend to continue. If, they don’t manage to do it, the contract may slide to ₹42,300 and ₹42,000 next week.

On the upside, the first target will be ₹45,000.

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