With the Federal Reserve turning more bullish about the US economy and indicating a rate hike before the end of this year, global gold prices dropped last week. The yellow metal closed at $1,142.1/ounce, down close to 2 per cent. SPDR Gold Trust, the largest gold backed exchange traded fund in the world, saw its holdings shrink by 3.28 tonnes to 692.26 tonnes.

The US dollar index rallied up sharply to 97.8 after the Fed’s meeting on Wednesday. But it retreated from the highs and closed the week at 96.94 on Friday.

The first estimates of US GDP for the third quarter that were released on Thursday disappointed observers. The number came in at 1.5 per cent, against expectations of a 1.7 per cent growth. However, on Friday, the Chicago PMI turned out to be stronger than expected.

The index rose sharply to 56.2 in October from 48.7 in September, pointing to the improving health of the economy. This undermined gold and had bullion bulls fleeing. Last week, other precious metals were under pressure too. Silver ended at $15.5/ounce, down 1.7 per cent and platinum closed at $985/ounce, down 1.6 per cent for the week.

Cues to watch

The US Fed may consider only domestic factors to take a call on rates in its meeting next month scheduled during December 15-16, say analysts.

Unlike in her last address, Janet Yellen remained silent about China’s slowdown and volatile global financial markets in the latest FOMC meeting. Therefore the concerns that held back the Federal Reserve from effecting a rate hike in September seem to have abated.

Markets are now seeing a 50 per cent chance (based on the Fed Funds futures) for a 25 basis points hike in interest rates in December. Previously, the probability for a rate hike in December was only 37 per cent.

This week, the US economic calendar is relatively light. The ISM Manufacturing index is expected on Monday. On Thursday, the jobless claims data is expected, followed by employment situation on Friday. The unemployment rate is expected to drop from 5.1 per cent in September to 5 per cent in October.

Non-farm payrolls are also expected to increase by 50,000 from September levels to about 1,90,000.

On the charts, the short term looks bearish for gold. Last week, it closed just above a crucial support at $1,137/ounce. This week, if this is support is broken, prices may drop down further to their 2014 low of $1,130/ounce. But if there is a reversal in the trend and prices advance, it is a bullish signal. However, only if $1,150/ounce is broken can we see $1,200/ounce levels again.

Weak rupee is helping

Both gold and silver futures in the domestic market dropped last week, though not as sharply as the international prices. This is thanks to a weak rupee. Rupee closed at 65.23 versus the dollar, down from 64.83 in the previous week.

The MCX gold futures contract closed the week at ₹26,499, down 1.16 per cent. The MCX Silver futures lost 1.2 per cent and finished at ₹36,490.

This week, if rupee throws in the towel and gives up its stand against the dollar, bullion contracts may see some gains.

MCX Gold faces a resistance at ₹27,000-27,200 levels. If this is crossed, it may hit ₹27,500 and move up further targeting ₹28,000. Downside, it has supports at ₹26,000 and ₹25,500 levels.

MCX Silver may move between ₹35,000 and ₹38,000 levels. There will be a reversal in trend only if prices cross ₹38,000.

This Dhanteras, the Centre is planning launch of two gold schemes — gold monetisation and sovereign gold bonds which were announced during the Budget.

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