Gold loses sheen with strong US jobs data

Back home, rise in import duty lets gold futures spike

It was another volatile week for gold. Global spot gold prices surged 2 per cent intra-week to reach a high of $1,437 per ounce. But the yellow metal failed to sustain the momentum and reversed lower. The down move gained pace on Friday after the release of US jobs data.

The US added 224,000 jobs in June, much higher that the market expectation for an increase of 165,000 jobs in the non-farm payroll. The strong job numbers dashed the hopes for a rate cut from the US Federal Reserve this month. As a result, gold, which had surged above the psychological mark of $1,400, witnessed a sharp fall on profit booking.

Budget impact

On the domestic front, the gold and silver futures contract on the Multi Commodity Exchange (MCX) spiked on Friday following the announcement of an increase in import duty. Finance Minister Nirmala Sitharaman said the import duties on precious metals will be increased to 12.5 per cent from the current 10 per cent.

The MCX-Gold and MCX-Silver futures contract spiked over 2 per cent each intraday following this announcement on Friday to make a high of ₹35,100 per 10 gm and ₹38,075 per kg, respectively. However, the prices reversed lower from the day’s high after the global prices ran into a sharp sell-off in the evening after the US jobs data release. MCX-Gold closed the day at ₹34,583 per 10 gm, up 1.1 per cent . The MCX-Silver futures contract closed marginally lower by 0.4 per cent for the week at ₹37,316 per kg.

Dollar surges

The US dollar index got a boost from the jobs data on Friday. The index surged, breaking above 97 on Friday and closing at 97.28, up 1.2 per cent for the week. The near-term outlook is positive. Support for the index is in the 96.90-96.80 region. A rise to 97.80-98 is possible in the coming days, which can continue to keep gold prices subdued. However, the dollar index has to breach 98 to gain fresh momentum and extend its upmove. A pull-back from 98 may take the index lower to 97 and 96 again, in which case gold prices can reverse higher in the coming weeks.

Gold outlook

The fall in the past week from the high of $1,437 indicates a double top formation on the daily chart of global spot gold ($1,399 per ounce) prices. The neckline support of this pattern is poised at $1,380, which can be tested in the coming days while gold remains below $1,410. A strong break below $1,380 will confirm the double top reversal pattern and drag gold lower to $1,370 or even $1,360. The level of $1,360 is a strong support and a further fall below $1,360 looks unlikely at the moment. On the other hand, if gold manages to sustain above $1,380 and reverses higher, it can move up to $1,400 and $1,410 levels again. In such a scenario, a sideways move between $1,380 and $1,440 can be seen for some time.

The outlook for the MCX-Gold (₹34,583 per 10 gm) remains bullish from a medium-term perspective. However, the short-term view looks mixed. The contract can oscillate in a broad range of ₹33,500 to ₹35,000 for some time. An eventual break above ₹35,000 will see the contract surging to ₹36,000 or even higher levels. The bullish outlook will get negated if the contract declines decisively below ₹33,500. In such a scenario, a corrective fall to ₹32,500 is possible.

Silver outlook

Global spot silver ($14.99 per ounce) has a cluster of supports between $14.80 and $14.70, which can be tested in the near term. Whether silver manages to reverse higher from there or not will decide the next move. A bounce from the $14.80-14.70 support zone can take silver higher to $15.10 and $15.20. But a break below $14.70 can drag it to $14.50 and $14.40.

The outlook for MCX-Silver (₹37,316 per kg) is mixed. It can remain in a broad range between ₹36,000 and ₹38,000. It is now poised around the mid-point of this range and has equal chances of either move up towards ₹38,000, the upper end of the range, or fall to ₹36,000, the lower end. A breakout on either side of ₹36,000 or ₹38,000 will decide the direction of the next move.

(The writer is a Chief Research Analyst at Kshitij Consultancy Services)

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