Sonia to the rescue of gold

It was UPA Chairperson Sonia Gandhi who rescued gold prices last week. Prices of the yellow metal, which were threatening to decline below the $1,260/ounce level, reversed higher when she asked the Government to take a look at the long list of complaints of gems and jewellery manufacturers.

Hope that India — the second biggest importer of gold — might re-consider its restrictions on gold imports helped the metal move above the critical resistance zone. Spot gold prices in the international market closed at $1,270/ounce on Friday, up 1.3 per cent for the week.

Renewed turbulence in emerging market currencies reinforced risk aversion, thus increasing gold’s attraction as a haven. The weakness in the US dollar too helped. The US dollar index declined 0.9 per cent to close at 80.45.

The Dow Jones Industrial Average dropped 579 points during the week. US corporate earnings in the December quarter have been good, but income projections for the March-14 quarter have been cut.

Silver and platinum, however, closed lower for the week losing over a per cent. Silver closed at $19.94/ounce and platinum ended at $1428.75/ounce.

In the domestic market, gold didn’t gain much. The drop in premiums on gold bars in the spot market pulled prices lower in the futures market. MCX gold futures last quoted at ₹29,519 per 10 gm, up just 0.8 per cent for the week. Volumes, however, were higher than usual. MCX Silver futures closed around 1 per cent lower at ₹44,691 per 1000 gm.

This week could be action-packed with the US Fed meeting on January 29 and some key data releases. Traders need to exercise caution.

In India

Gold prices in India etched a reversal in the later part of last week. From an intra-day low of ₹28,965/10 gm on Thursday, MCX gold futures crawled up to a high of ₹29,675/10 gm on Friday. However, the rally was checked by the fall in premiums in the spot market. Gold bar premiums fell more than 30 per cent on Friday to around $75/ounce in Mumbai. Traders made some gains on gold contracts, thanks also to the rupee. From 61.6 against the US dollar on Thursday, the rupee slid to 62.68 on Friday.

Trading sentiments in gold futures contract improved. Average daily turnover in MCX gold futures contract jumped 33 per cent from the previous week to ₹5,928 crore.

Cues to watch

The US central bank’s next policy meet is during January 28-29. There is widespread speculation that the US Federal Reserve may announce a further cut in its bond buying programme this time. If that happens, gold may see some selling. US housing sales rose in December after declining in the previous three months. The jobless claims report that came last Thursday showed marginal increase in claims in December. The initial jobless claims increased by a 1,000 to 3.26 lakh last week.

However, jobless claims have only fallen by 3,750 to 3.31 lakh, if one considers the four-week average.

On January 30, fourth quarter GDP advance estimate will be released in the US. With significant upward revisions seen in the last quarter numbers (to 4.1 per cent from 3.6 per cent earlier), it is expected that the fourth quarter figures will also be strong.

Gold traders have to keep an eye on any data from China hereon. The economic slowdown in China has been hurting sentiments of gold investors. In China, the world’s largest gold market, the manufacturing sector contracted in January. HSBC’s manufacturing index gave a reading of 49.6 in January, down from 50.5 in December.

Though it was a drop for the fourth continuous month, it was the first period of contraction since August. Chinese consumers’ demand for the yellow metal also appears to be cooling off now after the mad rush last year. Premiums in Shanghai Gold Exchange dropped to $9 an ounce on Friday from $18 an ounce a fortnight ago.

However, note that a continued weakness in the capital market may see gold continuing its upmove.

Holdings in SPDR Gold Trust, the world’s largest gold backed exchange-traded fund, dropped last week. It closed the week at 790.46 tonnes, down from 797.05 tonnes in the beginning of the year. If emerging markets continue to be weak and the rout in the emerging market currencies continues, gold ETF buyers may come back.

In India, it is unlikely that the import duty on gold may be tinkered with by the Government before the elections in May. So, domestic gold traders may see gold premiums going up. Rupee, however, would be the key to determine the direction of gold prices.

What charts say

Gold traders need to exercise caution. Speculation over outcome of the Fed meeting is likely to keep the yellow metal volatile. Gold has broken above its key resistance of $1,260/ounce last week and is now targeting $1,278 — the next major resistance. However, any negative news can well take it down to below $1,260/ounce again, so trade with strict stop loss.

Playing on MCX gold futures (₹ 29,519) will be even trickier. The trend will be weak as long as the contract trades below ₹30,000. If buying continues next week, price can go up to ₹29,984 and then ₹30,435. On the downside, the supports are at ₹29,063 and ₹ 28,875.

MCX Silver looks quite bearish and there is no display of strength. Even if the contract crawls higher intraday, it loses strength and ends near the close price. On the downside targets are ₹44,298 and ₹42,435. If, however, the contract manages to cut ₹45,000 levels, it can go up to ₹46,374.



Really?

The world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, holds 790 tonnes of gold. India has 14 gold ETFs. But these together hold less than 40 tonnes of gold.

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