Bullion Cues. Gold to gain from rupee weakness

The guessing game on when the Federal Reserve will increase interest rates continues.

Even at last week’s policy meet, the central bank didn’t give any hint on when it will increase rates though it cut another $10 million from its monthly bond re-purchase programme.

Gold closed 1 per cent down for the week at $1,294 per troy ounce.

The weak jobs report on Thursday didn’t help it recoup losses made in the initial part of the week. The non-farm payrolls increased by 2,09,000 in July against the expected number of 2,33,000. The unemployment rate inched up to 6.2 per cent from 6.1 per cent in June.

Silver dropped by 2 per cent to $20.33 per ounce. Platinum closed the week at $1,464, marking a loss of 1 per cent.

The US dollar index hit a six month high of 81.57 on Wednesday after the GDP report and ended the week at 81.3.

The US GDP report that was released on Wednesday showed an increase of 4 per cent in the June quarter, bettering market expectation of a 3 per cent increase. The past week also saw a heavy sell-off in global equity markets, with troubles starting from the US market.

Poor results of some companies, fear of the economic impact of new sanctions on Russia for US and Europe companies, the debt woes of a Portuguese bank and escalation of tensions in Israel and prospects of a sovereign default by Argentina all weighed on stocks.

The US mint reported that sale of American Eagle gold coins dropped by 40 per cent in July from a year earlier. The SPDR Gold Trust’s holdings remained unchanged last week at 801.84 tonnes.

The loss of appetite for gold among buyers in the physical market is adding to the worries of investors in the yellow metal.

Domestic market gold prices, however, moved up last week, thanks to the weak rupee. The slaughter in equity markets across the globe left emerging market currencies, including the rupee, weak.

Spot gold prices (24 karat) rose 0.5 per cent to ₹2,789/gram.

The US economic calendar doesn’t show many key events scheduled this week. Data on international trade is slated to come out on Wednesday, customary weekly jobless claims data should be made public on Thursday.

The issues in Iraq and the new sanctions imposed on Russia by the US will tax investors this week. However, if tensions ease, gold may lose its sheen and succumb to selling pressure. Gold is currently at a key support zone. A break below $1,268 may take it down sharply. In the initial part of the week, last Friday’s job report will also weigh on sentiment. Gold and silver futures on MCX inched up on a weak rupee.

MCX gold gained 0.4 per cent to close at ₹28,054 (for 10 gram) last week. Silver futures gained 0.3 per cent and ended the week at ₹44,427 (per kg).

Domestic market investors need to keep a close watch on the rupee. The massive sell-off in the equity market on Friday with a heavy pullout by FPIs made the currency test a low of 61.19 against the dollar.

The domestic currency closed the week at 61.185 — a four- month low. Technically, the currency chart appears weak now, leaving more room for a downside in the coming weeks.

A weaker rupee means gains on bullion contracts. MCX gold and MCX silver contracts could gather steam in the coming days.

In August last year, when the rupee weakened from 59.4 levels to 68.8 against the dollar, Indian investors made some quick bucks on their investments in gold and silver. Domestic gold prices were up 17 per cent that month, even as international prices were up just 6 per cent.

A similar turn of events may be seen now if the rupee sees more pain. So square off your short positions or play shorts only with a stop loss.

The fall last weak has taken gold prices close to a key medium term support zone of $1,270-$1,268. If the metal breaks below $1,270 in the coming week, there will be more pain. However, if it resists the pressure and moves higher, it will move sideways for some more time.

MCX gold (₹28,054) may inch up to test ₹28,200 and ₹28,670 levels this week. On the downside, levels are ₹27,700 and ₹27,400. For MCX silver (₹44,427), resistances are at ₹44,800 and ₹45,000. After this, the next target will be ₹45,400. Supports are at ₹44,000 and ₹43,500.

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