The US dollar has been on a tear. High expectations for a Fed rate hike, the turmoil in China and the still continuing stimulus in Europe and Japan are adding muscle to the dollar.

Last week, the US dollar index crossed the 100 mark and hit an eight-month high of 100.20.

Gold declined by about 2 per cent and ended the week at $1,057.4/ounce after testing lows of $1,052.8/ounce on Friday. Platinum and silver too ended in the red and closed at $835.7/ounce and $14.09/ounce.

Demand for the yellow metal from investors dropped. SPDR Gold Trust, the largest gold backed exchange traded fund, saw holdings drop to 654.8 tonnes, down from 660.75 tonnes in the previous week. All data releases in the US last week pointed to an upbeat economy.

The US Commerce Department on Tuesday said that the economy registered a strong 2.1 per cent growth over the same period last year in the third quarter, up from the initial estimate of 1.5 per cent growth.

Durable goods orders also posted a strong 3 per cent growth in October, against expectation of an increase of 1.5 per cent. With just two weeks left for the Fed rate meeting, bullion markets may see increased bouts of volatility in the coming days.

The market reaction to every data release may be more dramatic. So watch out!

Will the dollar rally sustain? Globally, most hedge funds and investors have turned bullish on the US. The key data points, including those for the job market, are showing an uptick.

However, if the greenback continues its rally, it may hurt the economy as US exports will lose competitiveness in the global market.

If the historical data is anything to go by, the US dollar rally should wither once the up-cycle in rates begins.

In the short term though, the greenback may see some upside, as its strength is measured vis-à-vis other currencies such as the euro that are sinking.

Technically, the outlook for gold is weak. It smashed its support of $1,063/ounce and came closer to the next support of $1,050/ounce last week as we had indicated.

This week, the metal will likely cut below $1,050. This week, there are some crucial data releases in the US. It starts with ISM manufacturing Index on Tuesday. On Thursday is the jobless claims number and on Friday the employment situation report.

Domestic market cues

Last week, the rupee too fell against the greenback. It closed at 66.75, down from 66.195 against the US dollar in the previous week. The domestic bullion contracts received support from this trend.

As a result, despite weak global trends, domestic gold closed only marginally lower at ₹25,059. MCX Silver ended flat at ₹33,701, after hitting a high of ₹34,324 on Thursday.

The outlook for global bullion prices is gloomy in the short term. However, in the domestic market, gold/silver prices may not see big downside.

A weaker rupee will buttress commodities, including bullion, that are priced in dollars.

MCX Gold has a strong resistance at ₹25,400-25,500 levels. This needs to be crossed for the contract to make further gains. On the downside, the supports are at ₹24,900 and ₹24,500.

MCX Silver may try to break its resistance at ₹34,500 levels this week. If successful, it may make even further gains.

However, if the contract starts to move down, on an about-turn in rupee, it may test support at ₹33,000 levels.

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