Gold is losing the plot again

With the ceasefire in Ukraine and talk of a Greek deal, investors are moving out of gold

Weaker than expected US retail sales data and a pick-up in Chinese and Indian gold buying supported gold during the week, but initial gains did not last.

The yellow metal closed at $1,,229.7, down 0.3 per cent after touching a high of $1,245.9 on Tuesday. The gains evaporated with the news of the ceasefire in Ukraine.

Smart money, which has been flowing into the US SPDR Gold Trust in recent weeks, exited the fund. The fund reported selling with holdings falling to 768.2 tonnes on Friday from 773.3 tonnes last week.

The platinum price also dropped. It closed at $1,207.6/ounce, down 1.3 per cent. Silver parted ways from the other precious metals and made a surprise gain. The white metal gained 3.8 per cent to $17.36/ounce, after strong GDP data from the Euro zone on Friday. As silver relies on industrial demand too, better economic prospects support silver prices. The European Union said that the region’s GDP expanded by 0.3 per cent sequentially in the fourth quarter of 2014. The US dollar index steadied after dropping to 93.8 on Friday, finally closing at 94.2.

Indian markets

Market reports suggest that Indian jewellery buying is picking up pace with the start of the marriage season. Domestic gold prices, which had slumped to a $10/ounce discount to international prices last month, are now at a $2 premium.

For traders in the futures market, last week was forgettable. Despite a week rupee, the gold futures contract closed in the red. MCX gold closed at ₹26,691, down 0.4 per cent from the previous week. The rupee ended at 62.19 against the dollar from 61.7 a week earlier.

In silver, though, traders made gains.

The MCX Silver futures contract registered gains, tracking the upbeat international prices. The MCX Silver futures contract closed at ₹38,204, up three per cent for the week.

This week, if MCX gold breaks below ₹26,500, it may go down to ₹26,000. If that level is breached, it may fall even further to ₹25,500 levels. However, if the contract starts to move up and breaks past ₹26,900, it can move up to hit ₹27,200 levels.

MCX Silver’s uptrend last week is positive. But it has to decisively move past ₹38,500 levels to make further gains. So, watch out. On the way up, the first resistance is at ₹38,500 and the next at ₹39,000 to a target of ₹39,900. However, if the contract reverses down from here, the first support will be at ₹37,000 and the second at ₹36,800.

The market is hoping for Greece to reach a deal with its creditors over the next two weeks. If the uncertainty ends, investors may again have a reason to short gold.

This week is also packed with key data releases from the US, from housing starts and industrial production data on Wednesday to the release of FOMC minutes from the January meeting. On Thursday is the jobless claims data.

Whether the Ukraine ceasefire holds will also matter. If tensions rise again, gold may see renewed safe haven buying. Brent crude rose above $60/barrel on Friday. The oil price direction could also have a bearing on gold. If prices bubble up again, gold may follow suit.

On the charts

Globally, the metal is poised just above a critical support.

If the support at $1,228 holds, the metal could go up further, else the downtrend will continue. Upside targets are $1,245 and $1,300. On the downside, if it breaches $1,228, the metal can target $1,200 and $1,170.

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