Gold can turn turbulent

Events such as the Fed's meeting and developments in the Ukraine-Russia crisis can cause volatility



Gold demonstrated its safe-haven property yet again last week. The yellow metal reversed from lows of $1,294 and moved above $1,300 on news of pro-Russian activists seizing a vehicle of international mediators. It closed at $1,303.3 per troy ounce on Friday, up 0.7 per cent for the week. Silver logged a gain of 0.5 per cent at $19.73 per ounce. Platinum gained 0.6 per cent to close at $1,422.7/ounce.

Investors moved out of stocks on fears of escalation of the Ukraine crisis. The Dow Jones Industrial Average dropped 140 points on Friday and closed 0.2 per cent down for the week.

US bond prices rose, pushing yields down on 30-year US Treasury bonds to 3.42 per cent, the lowest since June last year. The 10-year bond yield was at 2.66 on Friday. On the economic front, the number of Americans filing for jobless claims increased by 24,000 to 329,000. The four-week moving average of claims, which nulls volatility, increased slightly to 316,750 claims. The average was 354,750 a year ago.

However, gold buyers in the physical market appear to be fleeing. The world’s largest gold-backed exchange traded fund, the SPDR Gold Trust, reported its holdings at 792.14 tonnes on Friday, down from 795.14 tonnes the previous week.

Domestic market

In India, gold prices are gaining momentum ahead of Akshaya Tritiya that falls on May 2. Premium on gold bars in the physical market has risen to $110 per troy ounce from $90 a week back. However, the relaxation of gold import rules looks unlikely to happen soon.

Economic Affairs Secretary Arvind Mayaram told media on Friday that curbs on gold imports will be lifted in a calibrated manner. In the MCX, gold futures contract logged a gain of 1.4 per cent and closed at ₹28,905/10 gm. MCX silver futures, however, made just a 0.5 per cent gain. On Friday, the contract closed at ₹42,607/100 gm. The intra-week high though was ₹42,890.

The rupee dropped to 61.19 against the greenback during the week on demand for dollars from importers. The currency closed at 60.625 for the week.

Cues for traders

This week, traders need to keep tabs on a host of developments including the US Fed meet. US and EU leaders are preparing to impose fresh sanctions on Russia. The extent of this sanction will also impact bullion markets. The FOMC meets on Tuesday and Wednesday and analysts expect another $10-billion cut in stimulus from the regulator. There may also be cues on when interest rates will be hiked.

On Wednesday, the advance estimate of GDP growth for the April-June period will be released. Goldman Sachs expects just a 1 per cent growth in the quarter on account of bad weather that hit housing and retail sales. On Friday, May 2, April non-farm payroll data will be released. The report is expected to show an increase in hiring, probably higher than the March number.

On the charts

Traders need to exercise caution. As gold failed to cut $1,330 last week, there are downside risks to price at this level. The metal can correct to $1,260/$1,268 in the coming days. However, given that the $1,300 level invites fresh buying interest, a rally to $1,327/$1,334 can’t be ruled out.

The sharp recovery from Thursday’s low of $1,268 and a close above $1,300 on Friday forms a bullish hammer pattern. So, longs can be initiated at the current level with stop loss.

In MCX gold (₹28,905), there seems to be a strong resistance at ₹29,000 levels. For the past two weeks the contract has not been able to move past ₹29,000 despite good momentum. On Friday, it hit an intra-day high of ₹28,965. The targets now are ₹29,000 and ₹29,800. Supports are at ₹28,300 and ₹27,800.

MCX silver (₹42,607) cut the support of ₹42,300, but bounced back from there. Downside targets this week are ₹41,800 and ₹41,000. Resistance is at ₹43,000 and ₹43,500.

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