Gold to retain its uptrend

Weak US job numbers help bullion prices move higher after a brief correction

Bullion prices got a breather in the final trading session last week. This was thanks to the weak US Non-Farm Payroll (NFP) data which failed to meet market expectations. The global spot gold had begun the week on a negative note and was on a downtrend all through the week. But the US NFP data on Friday halted this fall and triggered a reversal from the low of $1,269 per ounce. The yellow metal closed at $1,289 per ounce on Friday, down 0.35 per cent for the week, recovering some of its losses. Among other precious metals, platinum closed at $1,080 per ounce and was up 0.3 per cent. Silver was the worst hit as it tumbled 2.1 per cent and closed at $17.47 per ounce.

On the domestic front, the gold futures contract on the Multi Commodity Exchange (MCX) closed at ₹30,378 per 10 gm and the silver contract closed at ₹41,731 per kg.

Watch the earnings

The US April job report showed that the country added only 1,60,000 jobs as against the market expectation of more than 2,00,000 jobs. The weak data fuelled hopes that the Federal Reserve would defer its next rate hike for some more time.

Although the precious metals managed to reverse higher after the US jobs data, the dollar index did not lose its sheen. The index fell to an intraday low of 93.3 immediately after the data release but managed to recover from there to close at 93.89, up about a per cent for the week. If the dollar index has shrugged off the weak job numbers, then what could have aided the reversal in precious metals?

The average hourly earnings of employees is also an important indicator which can offer cues on Fed’s rate actions. The average earnings rose (year-on-year) 2.5 per cent in April after falling 2.3 per cent (y-o-y) in March. If the trend continues, then the employee earnings can increase further in the coming months. In such a scenario, the odds of a rate hike in the US would increase. So going forward, employee earnings would also be an important indicator to watch for, that could influence the dollar index movement which, in turn, can impact gold price.

On the charts

The broader outlook for the spot gold price is bullish. Strong short-term support is between $1,260 and $1,250 which is likely to limit the downside. Immediate resistance is at $1,300. A strong break above this level will boost the momentum and take it higher to $1,325 and $1,333 — the 38.2 per cent Fibonacci retracement resistance. Further break above $1,333 will see gold price moving higher to $1,345 and $1,360 thereafter.

On the domestic front, the week for the bullion market begins with the big event “Akshaya Tritiya” on Monday. Though domestic demand surges on this auspicious day, it does not impact the trading prices on the exchange.

The fall in the MCX-gold last week from the high of ₹30,538 failed to decisively breach the psychological support at ₹30,000. The contract made a low of ₹29,897 and reversed sharply higher from there. The resistance at ₹30,500 is likely to be revisited in the initial sessions of the week. A strong break above ₹30,500 will see the contract moving higher to ₹30,700 and ₹31,000.

On the other hand, if the contract fails to break above ₹30,500, which is less likely, it can remain range-bound between ₹29,800 and ₹30,500 in the short term.

The MCX-Silver looks much stronger than the gold contract on the charts with significant support between ₹40,750 and ₹40,500. A strong break above the immediate resistance at ₹42,000 can take the MCX-Silver contract higher to ₹43,000.

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