Gold testing key support of $1,200/oz



Gold broke below the key $1,200/ounce support level and hit $1,187/ounce — a three-year low, as the US Federal Reserve announced its plan to reduce bond purchases last week.

From January 2014, the monthly cash injection by the Fed will decline by $10 billion to $75 billion. But, interest rates, it said, will remain low for a prolonged period.

The yellow metal closed at $1,203/ounce, down 2.8 per cent for the week. Silver ended at $19.4/ounce, down 1.5 per cent. The US Senate passed the Budget bill last week ending the risk of an imminent government shutdown in January. The US factories production data for November also gave a surprise by soaring 1.1 per cent — the largest increase in a year. The country’s gross domestic product climbed by 4.1 per cent in the September quarter, higher than previously reported 3.6 per cent.

Reacting to these events, investors continued to dump gold ETFs. In the last two weeks alone, holdings in SPDR Gold Trust — the world’s largest gold backed exchange-traded fund dropped by 26.99 tonnes to 808.72 tonnes. The fund started the year with a total holding of 1,350.8 tonnes.

The Indian market wasn’t much perturbed by the announcement of Fed tapering. The rupee which hit an intra-day high of 62.47 against the dollar on Thursday closed the week at 62.04, up 0.1 per cent for the week. With rupee not standing by it, gold lost sheen in the domestic market. The MCX gold futures contract closed at Rs 28,554/10 gram, down 3 per cent for the week. The MCX silver futures ended at Rs 44,007/100 grams, down 1.7 per cent.

The US Fed has ended the uncertainty about quantitative easing (QE) by announcing its tapering plan. If the planned pace of tapering continues, QE will end by December 2014. Data on the US jobless claims, GDP and industrial production and household spending, will be crucial for gold’s direction in the New Year. While data on US personal income and consumer spending for November will be released on Monday, jobless claims data will be out on Thursday.

The consensus estimate is that the unemployment claims will drop to 3.4 lakh this week from 3.79 lakh in the previous week.

If the actuals match or better the consensus, it will be negative for gold.

Gold may be range-bound in the coming weeks and may not fall significantly. After all, $1,200/ounce is the level at which a majority of gold miners breakeven. Indian investors need to trade on gold with a strict stop-loss. The rupee seems to be stabilising around 60-61 to a dollar, as the Centre looks to fast-track investments in infrastructure space to pull up growth before the elections in April-May and inflation fears start to ease with bumper crop expected this harvest season.

Gold has very strong support at $1,200/ounce. But a positive set of economic data can take the metal to June lows of $1,185.5/ounce. The next support for the metal is at $1,158.1/ounce.

The MCX gold future (Rs 28,554/10 gram) already broke its support at Rs 28,7421 gram last week, as we had indicated and is heading towards Rs 25,000 levels. In the next fortnight, the contract may slip to Rs 28,100 and Rs 27,855. If these levels are broken, the next support is Rs 27,200. However, if rupee turns weak or internationally gold prices inch up, the contract may rise to Rs 29,955 and Rs 30,872.

MCX silver futures (Rs 44,007/100 gram) may see bearish momentum continuing. The immediate support for the contract is at Rs 42,418 and the next is at Rs 41,000. On the upside, resistances lie at Rs 45,100 and Rs 46,712.

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