Weak dollar fails to boost gold

It was a very volatile week for gold. It initially hit a high of $1,215 before declining to break the support at $1,175. It finally closed $1,178.5/ounce, down 0.04 per cent for the week. The monetary policy statement of the FOMC meeting released last Wednesday indicated that a rate hike could be on the cards this year. The bank shrugged aside the recent slowdown in the US economy, terming it a mere transitionary phase.

Silver and platinum closed positively for the week. Silver gained 2.6 per cent to close at $16.15/ounce. Platinum gained 0.7 per cent to close at $1,131.9/ounce.

The US dollar index closed at 95.3 on Friday, lower by a sharp 1.7 per cent from the previous week. The US GDP growth numbers announced mid-week weighed on dollar. It was seen that the US economy grew 0.2 per cent in the March quarter, far lower from analysts’ estimate of a 1 per cent growth. In the December quarter, the country had reported a 2.2 per cent growth.

SPDR Gold Trust, the largest gold backed exchange traded fund in the world, reported its holdings at 741.75 tonnes, down marginally from the previous week’s 742.35 tonnes.

Cues to watch

Though the Federal Reserve left interest rates at zero in its meeting last week, it signalled that it was on track to do a rate hike this year. The soft economic data of the recent weeks was blamed on oil, slowing exports due to stronger dollar and consequences of a harsh winter. Committee members of the central bank expect the second and third quarter numbers to be better. The Federal Reserve also removed its calendar based forward guidance, leaving itself the flexibility to switch its stance of rate hikes if the data supported it. Analysts now are waiting for the Fed’s meeting in June and data releases in the next one month will create a lot of anxiety in the market.

It is best to be cautious with ‘buy’ positions in gold. The metal is finding it difficult to hold above $1,200/ounce. There is a bout of selling every time the metal crosses this threshold that brings it back to $1,170-1,175 levels. Last week, despite a weak dollar, the yellow metal could not edge higher. This shows inherent weakness in the trend that was taking gold up in the last few weeks. There is a possibility of gold sliding to the December low of $1,143/ounce in the coming weeks. On the upper side, only if $1,200-1,230 levels are broken, can any significant gains be expected.

This week, the early part is light in the US economic calendar, but there are key data releases towards the end. On Thursday is the usual jobless claims number and on Friday is the employment situation.

Indian investors

MCX gold futures closed marginally down for the week at ₹26,636. However, tracking international markets, MCX Silver futures closed at ₹37,790, up 1.6 per cent for the week. Rupee closed at 63.42 against the US dollar in the spot market, from 63.56 in the previous week.

Gold markets would turn to be very volatile over the next few months as the Fed’s decision on rate hikes remains ambivalent. It is best to trade bullion with strict stop losses. Technically, MCX Gold looks weak since its three attempts to cross ₹27,000/10 gram since mid-March have failed.

This week, the contract may move down again to test ₹26,000 targeting ₹25,500. But if there is any upward movement, the contract could move up to ₹27,100, if the resistance at ₹27,000 is broken.

Silver could move sideways in the international market trying to consolidate between $15 and $17/ounce. Silver contract traders in the domestic market should be watchful as the MCX Silver future contract’s recent breakout above ₹37,000/kg didn’t hold. The contract is likely to move between ₹35,000 and ₹38,000 in the short term. This week, the resistance and supports are ₹37,050/37,800 and ₹36,000/35,000.

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