The gold rout has stopped, for now

The dollar’s rising strength is hurting the yellow metal



After the US job market report on Friday, global gold prices recouped losses made in the early part of the week and closed at $1,094/ounce, down 0.15 per cent. The market now believes that the Federal Reserve may not put through multiple rate increases this year.

Data from US department of Labour showed that the non-farm pay rolls rose by 2,15,000 in July against the expected additions of 2,23,000.

However, as long as US rate hike fears hang like a sword over gold prices, there can be no sustained relief rally in gold. In the coming few weeks, if signs emerge of a strengthening labour market in the US, this will again fan the market’s expectation of a more than one rate hike in 2015 and gold will take a beating.

Physical demand for gold, due to falling prices, is yet to pick up. In the largest gold markets — India and China — buyers appear to be in wait-and-watch mode, and there is no rush to buy yet. Gold prices in the spot market in India quoted at premium of $1.5/ounce, down from $2/ounce two weeks ago.

SPDR Gold Trust, the largest gold backed exchange traded fund in the world, reported holdings of 667.7 tonnes on Friday, down from 680 tonnes two weeks before and 708 tonnes in mid-July.

The US dollar index closed marginally up at 97.56, after hitting a high of 98.3 on Monday.

Silver closed the week up by 0.2 per cent at $14.8/ounce.

Platinum closed under $965/ounce, down over 2 per cent for the week.

Cues to watch

This is a data-light week in the US. Data releases start only from the second part of the week with the weekly jobless claims and retail sales number on Thursday. US retail sales are expected to have rebounded in July.

The reading is expected to show an increase of 0.5 per cent in July, compared with a 0.3 per cent drop in the previous month. On Friday is the industrial production and consumer sentiment data.

Industrial production in July is estimated by market analysts to have increased by 0.4 per cent against 0.3 per cent in June. The University of Michigan’s survey is expected to show a rise in consumer sentiment for August.

If job market numbers and industrial production data show an increase this week, gold prices may again move down to test $1,080/ounce. On breaking the support around $1,080-1,077/ounce, the next stop will be at $1,050. Given that the dollar is also continuing to gain muscle, going long on gold at current levels is not recommended.

However, if the metal regains strength and manages to cross $1,100 levels, you may consider it. Then, the target would be $1,150/ounce.

Domestic market investors

Indian investors need to keep an eye on rupee. The currency appreciated against the US dollar in the past week and closed at 63.82. A stronger rupee at a time when international gold prices are moving southwards will mean even sharp losses to a domestic market gold investor.

MCX Gold contract ended the week at ₹24,895, up 0.3 per cent. MCX Silver futures contract ended at ₹34,031, almost flat.

This week, MCX gold futures contract may move down to hit the support at ₹24,500. And if the fall doesn’t halt at ₹24,500, the contract may move further down to ₹24,000. On the higher side, the first resistance will be at ₹25,000 and the next at ₹25,500. MCX Silver may also look down targeting ₹33,000 levels this week if the support at ₹33,500 breaks. However, if the contract gains momentum to move up, the first stop will be at ₹34,500 and the next at ₹35,000.

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