Gold loses sheen

Strong economic numbers from the US have pushed the price lower

After a sharp rise in the beginning of last week, the yellow metal lost momentum and reversed lower. It fell to a low of $1,226 on Thursday before closing at $1,231 on Friday, down 0.6 per cent for the week. The other precious metals Silver and Platinum also closed the week in the red. Silver closed at $17.2 per ounce, down 0.4 per cent and Platinum at $1,250 per ounce, down 0.9 per cent.

Existing home sales in US beating market expectation was the initial trigger that caused a reversal in gold prices. This number increased 2.4 per cent to 5.17 million units in September from 5.05 million in August. Market was expecting a 1 per cent rise in the existing home sales.

The initial jobless claims increased 17,000 to 2,83,000 for the week ended October 18. However, its four-week average fell to a 14-year low of 2,81,000, overshadowing the weekly rise in claims. New home sales in the US rose to 4.67 million units in September from revised 4.66 million units in the previous month.

The positive economic data releases from the US took the dollar index (85.73) higher by 0.7 per cent last week. Stronger dollar has in turn pulled gold price lower.

Also, the US SPDR Gold Trust, the largest gold backed exchange-traded-fund, is continuing to see outflows. The fund’s holding tumbled 2 per cent to 745.39 tonnes last week from 760.93 tonnes the week earlier.

Cues to watch

The US Federal Reserve’s meeting on Wednesday will be a key event to watch this week. With the quantitative easing set to be wound down this month, market will be curious to know the Federal Reserve’s intent on interest rate hike plan. Any hint that the interest rate hike could be delayed will be positive for gold.

Other key economic data releases from the US this week include the durable goods order and consumer confidence data on Tuesday. It will be followed by the GDP and the usual weekly unemployment claims data releases on Thursday and the personal consumption expenditure data on Friday.

On the charts

The global spot gold price has support at $1,225 which is the 21-day moving average level. A test of this support level looks likely this week. If gold manages to sustain above this level, a rise to $1,240, the immediate resistance level, is possible this week. A break above $1,240 can take it further higher to $1,250.

On the other hand, if gold declines below $1,225, it can then target $1,219 and $1,210 which are the 50 and 61.8 per cent Fibonacci retracement support levels.

Silver looks much weaker than gold. It can dip to test its crucial support at $17 this week. A fall below this support can drag it further lower to $16.6. However, a reversal from $17 on the other hand can take the silver price higher to $17.6 in the coming week.

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