Gold to shine on weak US data

With prices breaking through a critical barrier, $1,220 could be on the cards

Gold prices closed higher last week on a weak dollar. The initial fall in prices halted at a low of $1,178.59 on Tuesday. Thereafter the yellow metal made a smart recovery based on a private report, which suggested that the upcoming US employment data would be weak.

The markets took this as an early signal for the official numbers due for release on Friday. Gold prices surged about 1.7 per cent on a single day on Wednesday to breach the psychological $1,200 mark. A blip on Thursday was shortlived as the trigger for further rally came from the official US non-farm payroll (NFP) numbers on Friday. The data has helped gold prices record a strong close above $1,200 mark at $1,206.9 for the week.

Non-farm payrolls increased by just 1,26,000 in March while the market was expecting a rise of 2,51,000. The employment numbers for the preceding two months — January and February — were also revised lower. Almost all global markets were closed while this data was released in the US. Global bullion prices could get a boost when markets re-open today after the long weekend.

On the domestic front, the gold futures contract traded on the Multi Commodity Exchange (MCX) recorded a low of ₹26,145 on Wednesday and rose higher from there to close the week at ₹26,597.

Cues to watch

There is no major data release from the US in the beginning of the week. So the impact of Friday’s bad US jobs data can continue to drive gold price higher in the first couple of days. The US Federal Reserve’s minutes are due for release on Wednesday, which will be followed by the usual weekly jobless claims on Thursday. With less data to impact the price, dollar movement will have a greater influence in the yellow metal’s price this week.

The outlook for the dollar index (96.74) is negative in the short term. The index can fall to 96 this week. The fall can even extend to 95.5 and 95 there after in the coming weeks. Resistances for the index are at 97.5 and 98. The outlook will turn positive only if the index breaches above 98 decisively. But there is no major market event visible in the near term which could trigger this breakout. The bearish outlook for the dollar index could propel gold prices higher.

On the charts

The outlook is bullish for gold. The bounce from the low of $1,178.59 is technically very important as the reversal has happened from the 21-day moving average support level.

Also, the price action on the chart after Wednesday’s sharp 2 per cent rally suggests that gold is not finding more selling pressure below $1,200.

Having said this, a rally to $1,220 looks likely this week. Supports are at $1,190, $1,185 and $1,179.

The medium-term bias is also turning bullish as the formation of an inverted head and shoulder reversal pattern is evident on the daily chart. The neckline resistance is coming up at $1,220. A strong break and close above this level will confirm this pattern. It can then take gold price to $1,240 and $1,250 initially. Note that the target of the pattern mentioned above will be $1,300. So, one should not be surprised to see gold revisiting this level if $1,220 is breached decisively.

MCX-gold futures contract has reversed higher after taking support from the 21-day moving average last week.

The outlook is bullish. Supports for the contract are at ₹26,350 and ₹26,120. A rise to ₹26,750 and also a test of the 200-day moving average resistance at ₹27,045 looks likely this week.

A strong break and close above ₹27,045 could add momentum to the rally. The ensuing targets on such a break will be ₹27,500 and even ₹28,000.

MCX-Silver has immediate support at ₹37,120, the 21-week moving average. If this support holds, then a reversal from here will be bullish. In such a scenario, the contract can target ₹38,000 and ₹38,500 this week. But a break below ₹37,120 could add more pressure and drag the contract lower to ₹36,700.

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