Can gold move up further?

Yes, if the weakness in dollar continues

The past week was a landmark week for global gold markets with the decades-old London gold fix giving way to a new gold benchmark — the LBMA gold price, on Friday. The London gold fix, in place since 1919, was replaced due to allegations of unethical conduct by participants.

ICE will now conduct electronic bidding auctions in gold two times a day. The participating banks will place bids online and this will be displayed onscreen in real time basis. The price at which buy and sell orders match will be the benchmark price.

Meanwhile, the much-awaited US Federal Reserve meeting finally ended up offering positive cues for the gold market last week. After dropping the word ‘patience’ from its policy statement, the Fed alleviated market fears about an early rate hike by expressing renewed concern over economic growth.

This caused the dollar to stumble and gold to rally. Spot gold prices gained about 2 per cent to end the week at $1,182.5/ounce. The US dollar index, which had closed at 100.33 in the week ending March 13, dropped to end at 97.9, down by almost 2.5 per cent. Gold prices in India too moved up, but rupee’s appreciation against the greenback undermined gains. The MCX gold futures contract ended at ₹26,182, up just 1.1 per cent.

Other precious metals too made sharp gains in the international market. Silver closed at $16.75/ounce, up 7 per cent. Platinum ended the week at $1,138.8/ounce, higher by 1.8 per cent. Investors, however, didn’t seem much enthused. Outflows from the largest gold backed ETF, SPDR Gold Trust, continued in the week after a small increase mid-week. The fund’s holding dropped to 744.4 tonnes, from 750.67 tonnes.

Cues to watch

From the Federal Reserve’s monetary policy statement, it appears likely that it will not be rushing to hike rates. This creates room for gold to go up in the short term. The US central bank has made downward revision in projections for inflation and economic growth, a positive for gold. After a roller-coaster week, the next one or two trading sessions may see relative calm in the gold market.

The week ahead too is packed with data from the US. On Monday existing home sales data will be released, followed by new home sales on Tuesday. With the improvement in employment data in the last few months it is expected that the housing sales data will be good. On Tuesday the release of the US consumer price inflation and flash PMI data is scheduled for the US, Euro Zone, Japan and China, which will offer further clues on the pace of recovery. US inflation is likely to have remained low in February due to subdued oil prices.

What will also be key is the US fourth quarter final GDP number, to be released on Friday. Though the initial estimate in January showed a 2.6 per cent growth, it was revised to 2.2 per cent in February. If the final number settles between the last two estimates, it will be market neutral. But if there is a downward revision, sentiment on the US economy may turn negative. In the third quarter, the economy had recorded strong growth of 5 per cent.

On the charts

Gold prices have bounced back sharply after hitting a low of $1,146/ounce last week. Now, they may move up to test resistance in the $1,190-$1,193 zone towards the target of $1,200. Supports are at $1,168 and $1,160. In India, upward momentum in gold prices may be checked by a stronger rupee. From 62.96 in the previous week, the rupee moved to 62.47.

MCX Gold futures moved up 1.1 per cent (to ₹26,182), MCX Silver futures contract was up 6.3 per cent (to ₹37,789). MCX Gold may test a resistance at ₹26,200 this week. If this resistance is broken, it will hit the target at ₹26,500. On the downside, supports are at ₹25,900 and ₹25,500. MCX Silver has crossed its resistance zone. The contract may now target ₹38,000 if it breaks 37,800 levels. The second resistance is at ₹38,400 to the target ₹38,700. However, if the contract moves down, it will find support at ₹37,050.

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