Gold gets a leg-up from weak dollar

International prices too support as short term technical outlook is strong



Gold in the spot market in India has seen discounts drop on improved demand ahead of the festival season. Spot gold prices were at a discount of $20/ounce, a fortnight back, but now are at a discount of just $10-12/ounce.

Traders expect consumers to flock to shop floors next month as the festival season starts. In the first two quarters of the year, Indian gold consumers were active in selling their old gold as prices rallied by about 20 per cent. A WGC survey in India and China saw 27 per cent and 43 per cent of respondents citing higher gold prices as the most important factor influencing recycling of gold. The global supply from recycled gold was at 686.7 tonnes in the period between January and June this year — the highest for a half year since 2012. This increase was driven largely by India.

Gold prices in the futures market in India were at ₹31,281 per 10 gm, up 1.5 per cent for the week, thanks to the rally in prices in the international market.

Spot gold prices ended at $1,337.5/ounce in the global market, up 2 per cent for the week. The Federal Reserve kept rates unchanged in its policy meeting last week and took a dovish stance on rate trajectory. This saw dollar come under pressure which lifted the yellow metal. The US dollar index ended at 95.47, down 0.7 per cent.

The gains were sharper in other precious metals. At $19.69/ounce, silver was up 4.8 per cent. Platinum rallied to $1,054/ounce, up 3.7 per cent.

Investors have been continuing to chase gold. SPDR gold trust, the largest gold backed exchange traded fund in the world, saw its holdings rise to 951.2 tonnes from 942.6 tonnes a week back and 939.94 tonnes a fortnight back.

Cues to watch

The gold market may witness good action over the next one-two months given the upcoming US presidential elections. While at last week’s policy meet, the Fed highlighted its reservations over any hike immediately, the market may look for some cues in the next policy meet during November 1-2. The US elections are on November 8.

In the US, on Wednesday this week, is the release of the data on durable goods order. While in July, the new orders were up by 4.4 per cent (from June), in August it is expected that the orders would have declined by 1.9 per cent over the previous month. The market will also keenly await the release of the GDP data on Thursday, September 29. This will be the third and final estimate of the second quarter. It is expected that the GDP growth may come at about 1.3 per cent, which is a tad above the previous estimate of 1.1 per cent growth due to the higher-than-estimated consumer spending. On October 3 is the release of the manufacturing data of September. This will be followed by the employment situation data on October 7.

Note that any positive economic news will be a drag on gold prices.

On the charts

If gold breaks the resistance around $1,355/ounce in the next two weeks, it may make more gains before the year end, targeting $1,375 levels. Any price drops before that may take support at around $1,310.

In the domestic market, the gains in the gold and silver futures contract were checked by appreciation in rupee. The currency closed at 66.65 against the US dollar from 66.95 a week back.

MCX gold futures contract may try to test levels ₹31,500 this week and if it succeeds, may rally further targeting ₹31,600 by September 30. Downside supports are at ₹30,900 and ₹30,500. MCX Silver had moved up very strongly in the last two weeks as indicated in the previous article. Now, having crossed the hurdle at ₹47,600 and stayed above the level for sometime, it looks as if the contract may try to show its mettle again this week. From the close of ₹46,817 last week, MCX Silver futures contract may move up again in the next two weeks targeting ₹48,000 levels.

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