Gold rally gathers momentum

China’s surprise rate cut helped the yellow metal breach the $1,200 mark

Gold prices rallied last week and closed higher for the third consecutive week.

The surprise rate cut announcement from China helped the yellow metal breach the psychological $1,200 per ounce mark last week.

All through the week, spot gold prices were range-bound between $1,175 and $1,205.

China’s rate cut boosted sentiment and pushed gold prices as high as $1,207 before closing at $1,201.55, up 1.1 per cent for the week.

Mixed data releases from the US led to a volatile trade in the yellow metal. But for most part of the week, prices were within a tight range.

After rising 0.8 per cent in September, US industrial production fell 0.1 per cent in October. Housing starts fell while the existing home sales showed signs of a strong pick-up.

The initial jobless claims fell 2,000 to 2,91,000. The US Federal Reserve’s minutes of its October meeting, which was released on Wednesday, failed to indicate when the rate hike in the US would begin.

Among other precious metals, Silver rose 0.86 per cent for the week and closed at $16.44 per ounce. Platinum closed at $1,227.75 per ounce, up 1.16 per cent for the week.

The holdings of SPDR Gold Trust, the largest gold-backed exchange traded fund, increased marginally to 720.91 tonnes last week, from 720.62 tonnes the week earlier.

Cues to watch

A slew of important data releases from the US is expected this week. The key GDP and consumer confidence data on Tuesday will be followed by the personal income, personal consumption expenditure, new home sales and durable goods order on Wednesday.

The US markets are closed on Thursday for Thanksgiving Day and there is no major data release on Friday.

Although China’s rate cut has boosted sentiment, a strong dollar could still hurt and limit the rally in gold prices. The dollar index (88.31) closed above 88.

It could extend its rally to 90 levels if data released this week are positive. A rise in the dollar index could restrict the upside in gold prices.

Domestic cues

On the domestic front, gold prices failed to take cues from the rally in global prices.

The gold futures contract traded on the Multi Commodity Exchange (MCX) was volatile and rose to a high of ₹26,833 per 10 gm from a low of ₹26,057 on Tuesday. However, a strong recovery in the rupee from its low of 62.22 towards the end of the week pushed MCX-gold futures price lower.

The contract closed at ₹26,391 on Friday, down 0.3 per cent for the week.

MCX-Silver, on the other hand, managed to close with marginal gains. The contract was up 0.1 per cent for the week and closed at ₹36,080 per kg on Friday.

On the charts

The close above the psychological $1,200 mark on Friday is positive for gold. Resistance is at $1,208 — the 61.8 per cent Fibonacci retracement level.

A strong close above this level can take global spot gold prices higher to their next targets of $1,218 and $1,224. On the other hand, inability to breach $1,208 could trigger a reversal and take the yellow metal below $1,200 towards $1,190 and $1,180.

On the domestic front, the MCX-gold futures contract has closed on a mixed note. Last week’s candlestick pattern indicates indecisiveness. Immediate support is at ₹26,300 — the 21-day moving average level. Key short-term support is at ₹26,000. As long the contract trades above this support level, it can rally to ₹26,900 and ₹27,300. The rally can extend to ₹27,800 if the MCX-gold futures contract manages to breach its resistance at ₹27,300.

The outlook for MCX-gold will turn bearish only on a strong break below ₹26,000. The ensuing targets on such a break will be ₹25,500 and ₹25,200.

MCX-Silver futures contract, on the other hand, is currently range-bound between ₹35,350 and ₹36,650 per kg. The price action on the charts indicates bullishness and the contract can breach ₹36,650 and rise to test its key resistance at ₹37,000. A strong break above this level will add momentum to the rally and push it further to ₹38,000.

Support for the contract is at ₹35,350. Declines below this level can drag MCX-Silver lower to ₹35,000 and ₹34,500.

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