Roaring dollar, weak gold

There was disappointment again for gold bulls last week. The gold rally failed to hold on to the momentum of the previous week and global gold prices closed at $1,164.5/ounce, down 1 per cent.

Though China’s surprise rate cut cheered investors and precious metals, including gold, moved up on Friday, fears of a Federal Reserve rate hike loomed large over markets.

Platinum as also silver were down by 1 per cent each last week to $1,001.4/ounce and $15.8/ounce respectively.

The strong US dollar and the rally in US equities also turned the sentiment negative on precious metals.

The US dollar index closed the week at 97.13, up by close to 3 per cent, thanks to upbeat economic data.

On Friday, the Markit US flash manufacturing purchasing managers index rose to 54.0 in October from 53.1 in September, against analysts’ expectation of a fall to 52.3.

SPDR Gold Trust, the largest gold backed exchange traded fund, saw holdings rise to 697.3 tonnes by Thursday from 693.7 tonnes in the end of previous week, but on Friday ended with holdings of 695.54 tonnes.

Monetary easing by central banks is good news for gold — a metal that is a proven inflation hedge. But of late no amount of ‘stimulus’ news is helping gold.

Last week, for instance, the ECB chief indicated that there would be the next round of stimulus in December with possible rate cuts too.

China actually surprised the market on Friday with a 25 basis points cut in the one-year lending rate.

This news saw gold edge up as a knee-jerk reaction, but the rally didn’t even hold till the end of the day and gold ended in the red on Friday. The direction of the dollar has been the new mantra for investors.

Every other asset class — gold, equity and bonds — seems to be dancing to the tune of the greenback in recent times.

Mario Draghi’s hints on the next round of stimulus and China’s rate cut ultimately have only helped the US dollar. Last week, the US dollar index made sharp gains. Investors’ confidence over a rate hike by the Fed is now higher than it was a few weeks ago.

If the momentum in the US dollar continues in the coming week, gold may lose further ground. The yellow metal may dip below $1,150/ounce and target $1,132.

This week, there are many key data releases in the US. It starts with new home sales data on Monday, durable goods orders on Tuesday and the Fed meeting on Wednesday, which can give clues to rate direction.

On Thursday is the release of the first estimate of the third quarter GDP. The consensus estimates are in the 1- 2.3 per cent range.

The rupee (64.82 versus the dollar) stayed flat last week and gold and silver futures contracts mirrored the movement in international prices.

MCX Gold futures ended 1.3 per cent down at ₹26,809. MCX Silver futures contract closed at ₹36,942, down 1.2 per cent.

Now, with rupee holding fort, gain/loss in bullion contracts for Indian investors in the short term looks completely dependant on the macro developments. This week, with important data releases in the US, there may be heightened volatility and investors need to trade strictly with stop losses.

MCX Gold has an immediate support at ₹26,700, on breaking which it can test ₹26,500 levels. On the higher side, it can move to ₹27,200 and ₹27,500.

MCX Silver didn’t manage to break the resistance at ₹37,800 and made an about-turn at ₹37,385 levels. This week, the contract may move down further towards ₹36,000-35,500 levels.

The one local news that cheered observers last week was the RBI’s release of guidelines on the gold monetisation scheme.

With the official launch of the scheme planned for the first week of November, the central bank released guidelines for banks on how to implement it.

It stated that interest rate on the scheme will be fixed by banks and the scheme will replace the current gold deposit schemes.

The minimum deposit accepted will be 30 gram and the longest tenure for which the deposit will be accepted is 12-15 years.

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