Gold fails Greece test

The brewing crisis in Greece has seen investors rush to the US dollar rather than gold as a safe haven



Worries about the Greek sovereign default are, surprisingly enough, not adding much sheen to gold. The yellow metal has failed to display any safe-haven attributes in this entire Greece drama. Instead it has been completely driven and influenced by movements in the US dollar. This is a repeat of the situation during strikes on Syria and the Russia-Ukraine crisis last year. Although financial markets are nervous, investors seem to be shunning gold as a safe haven and rushing into the dollar instead.

The global spot gold price tumbled in the past week from its high of $1,188 per ounce on Monday to record a low of $1,157 on Thursday despite the brewing crisis at Greece. However, weak US jobs data rescued the yellow metal as the dollar gave up some of its gains. Gold prices reversed a bit higher to close the week at $1,168.7, down 0.6 per cent for the week. Among the other precious metals, silver closed 0.7 per cent lower at $15.7 per ounce while platinum closed almost flat at $1,083 per ounce.

On the domestic front, the strong rupee put additional pressure on the gold futures contract traded on the Multi Commodity Exchange (MCX). The contract had closed 0.65 per cent lower at ₹26,352 per 10 gm, its second consecutive negative weekly close. MCX-Silver was down 1.3 per cent and closed at ₹35,515 per kg last week.

Watch the dollar

This suggests that the US dollar will need a close watch to get cues on the bullion price movements. If the dollar gathers momentum after the outcome of the Greece referendum is known, gold could come under further pressure.

Apart from Greece, the US trade balance data on Tuesday could influence the dollar movement which in turn could impact gold.

The US Federal Reserve is largely concerned about the slowdown in exports (down about 4 per cent from $134.5 billion in December last year to $129 billion in April). If the exports data is positive, the dollar could get a further boost this week. As a result, gold could come under pressure and fall further.

On the charts

Immediate resistance for global gold spot prices is at $1,170. Inability to breach this hurdle can drag it lower to $1,154 in the coming sessions. Only a strong break above $1,170 could ease the downside pressure which can take the price higher to $1,180 or even $1,190.

Technically, the level of $1,150 is going to be very crucial to decide the next leg of move. A strong break and decisive weekly close below $1,150 will be bearish for a fall to $1,125 and $1,115. On the other hand, if gold manages to sustain above $1,150, it could remain inside the $1,150-1,200 range for some time.

On the domestic front, the MCX-gold futures contract is facing strong resistance at ₹27,000 for the last couple of weeks. Immediate resistance is at ₹26,500. A reversal after testing this level can take the contract lower to ₹26,000 and ₹25,800 in the coming week. Only a strong break and a weekly close above ₹27,000 will ease the downside pressure and turn the outlook bullish. But such a break looks unlikely at the moment with the presence of cluster of moving average resistances in the ₹26,500-₹27,000 zone.

MCX silver, on the other hand, has declined below an important trendline support at ₹36,000. It can fall to ₹35,000 in the coming days which is the next important support level. A reversal from this support could see a relief rally to ₹36,000 and ₹36,500. But a fall below ₹35,000 will increase the danger of the downtrend extending further to ₹34,000 levels.

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