Gold continues moving uphill

Short covering helps the yellow metal price surge higher

A sharp rally triggered by short-covering on Friday helped gold prices close higher for the second consecutive week.

Gold was struggling in the initial part of the week, in the absence of any major data releases from the US. Spot gold prices were stuck in a sideways range between $1,147 and ₹1,177 per ounce until Friday.

However, a short squeeze took the prices as high as $1,193 before closing at $1,188.

The US initial jobless claims data on Thursday and retail sales on Friday had no major impact on gold price.

Initial jobless claims rose 12,000 to 2,90,000 while retail sales were up 0.3 per cent.

Among other precious metals, silver shot up 7 per cent last week and closed at $16.3 per ounce. However, platinum failed to take cues from gold and silver. It closed the week lower by 0.3 per cent at $1,213 per ounce.

SPDR Gold Trust, the largest gold-backed exchange traded fund, is continuing to see outflows. The fund’s holding fell to 720.62 tonnes last week from 727.15 tonnes the week earlier.

Cues to watch

The US calendar is packed with a slew of important data releases this week. So, the volatility witnessed at the end of last week could very well continue this week as well. US industrial production data is on Monday, which will be followed by Producer Price Index (PPI) inflation data on Tuesday.

The US Federal Reserve releases the minutes of its October meeting on Wednesday.

The US housing starts is also slated for release on the same day while regular jobless claims and the existing home sales data will be out on Thursday.

Domestic cues

India has once again regained the crown from China as the world’s largest gold consumer.

The festival season demand has pushed Indian gold consumption to 225.1 tonnes, up 39 per cent in the July-September quarter. China’s consumption fell 37 per cent for the same period.

Domestic gold price also followed the global trend last week and prices surged late on Friday.

The gold futures contract traded on the Multi Commodity Exchange (MCX) was stuck in a narrow range of ₹25,400 and ₹26,000 per 10 gram until Friday. The sharp rise in the global gold price in Friday’s US session helped MCX-gold breach its hurdle at ₹26,000 and close at ₹26,466, up 2 per cent for the week. MCX-silver futures contract closed at ₹36,032 per kg, up 3.6 per cent for the week.

The Indian rupee closed on a weaker note last week. Further decline in the currency this week could help domestic gold price move higher.

On the charts

Friday’s sharp rally has eased the downside pressure for gold. However, the price action this week is crucial. It will be interesting to see if gold is able to hold on to its gain.

Resistance for the global spot gold price is at $1,195 — the 21-day moving average level. A test of this level looks likely early this week. A strong break above $1,195 and a close above the psychological $1,200 mark would be a near-term bullish sign. In such a scenario, gold can extend its rally, targeting $1,218 levels in the coming week.

On the other hand, a reversal from $1,195 will bring back the selling pressure. It can then drag gold price lower to $1,180 and $1,160 levels once again.

On the domestic front, the MCX-gold futures contract has support at ₹26,000 per 10 gm. While the contract remains above this level, there is a strong likelihood of it breaching its immediate resistance at ₹26,500. Such a break can take the contract higher to the next targets of ₹27,000 and ₹27,350.

The outlook will turn negative if the MCX-gold futures contract records a decisive close below ₹26,000. The ensuing targets on such a fall will be ₹25,800 and ₹25,500. It will also increase the possibility of the fall extending to even ₹25,000.

MCX-silver has a strong resistance at ₹36,500 per kg. The contract has to surpass this hurdle in order to extend the rally. The next targets are ₹37,500 and ₹38,500. On the other hand, inability to breach ₹36,500 and a reversal from there could turn the outlook bearish. It can then drag the contract lower to ₹35,300 and ₹34,500.

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