Gold rally set to continue

Gold got a fresh lease of life, thanks to the Federal Reserve. The minutes of the Federal Reserve’s December meeting released last week indicated that rates might not be raised before April. This is a positive for gold. But with the euro continuing to sink, gains on gold may be checked due to a stronger dollar. The Euro Zone slipped into deflation in December and speculation is rife that the European Central Bank will announce fresh stimulus measures.

The political uncertainty in Greece will, however, provide some support to gold prices in the short term. Keep an eye on oil too. In the last one week alone, oil prices have fallen over 10 per cent.

Dropping oil prices are negative for gold, but, if prices fall to the extent that it kindles fears over global economic health, then gold may move up. Experts say at $50/barrel, oil prices have not hit the bottom yet, and there could be more pain, going ahead.

This week, there are some key economic releases in the US. It starts with the retail sales data on Wednesday, the usual jobless claims on Thursday and the Consumer Price Index on Friday. The industrial production numbers are also expected at the end of the week. It is expected that industrial production will be flat in December after the reported 1.3 per cent growth in November.

Price outlook

With prices having held above the critical support of $1,200/ounce, gold prices can move a little further up this week. Now that prices are above $1,220, the next target is $1,240.

In the domestic market, MCX gold futures saw all gains made in the week evaporate towards the end as rupee gained sharply against the dollar. Rupee closed at 62.3 against the greenback on Friday, up from the previous week’s close of 63.2. MCX gold futures closed at ₹26,800. This week, on the downside, if the support at ₹26,600 is breached, it can fall to ₹26,000. However, if the contract inches up, watch out for ₹27,000. If this level is breached, it can move up further to ₹27,400 and ₹27,800.

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