Gold Bullion Cues: Turbulence fails to move bullion
Mumbai-India (July 12) Normally, turbulence in financial markets stokes safe-haven buying in gold, but this time, turbulence was a non-event for the bullion markets.
On the one hand, Greece defaulted on its $1.7-billion payment to the IMF last week and Greek voters rejected the creditors’ terms.
On the other, China’s stock market plummeted, roiling financial markets across the globe. But, gold prices still ended in the red — down by 0.4 per cent for the week at $1,163.7/ounce.
In fact, in the first half of the week, gold prices declined quite sharply, oblivious to the tumbling Chinese markets and hit a low of $1,147.4/ounce.
Market players were expecting a hawkish statement from the US Fed on Wednesday and reduced positions in gold. The central bank, however, expressed concerns over Greece and didn’t give a timeline for the rate hike. Post the Fed minutes, thus, the dollar lost its sheen and let gold crawl up. The US dollar index ended the week at 96.025, down marginally.
The holdings of SPDR Gold Trust, the largest gold backed ETF in the world, stood at 707.58 tonnes end week, down from 709.65 tonnes the previous Friday. Buying in the physical markets across Asia and India remained weak.
In India, the spot price was at a discount of $7-8/ounce.
Investors eyeing safety were buying US treasury notes. The 10-year US government bond yield dropped to 2.174 per cent on Wednesday, down from 2.38 per cent in the previous week.
Cues to watch
Greece seems to be toying with an exit from the Euro Zone, but a last-minute deal could avert it, believe experts. Last time, in 2012, when Greece’s debt woes ballooned, the ECB managed to save the union. So, watch out for developments in the European leaders’ summit on Tuesday.
In the US, a few key data releases are expected this week. It starts with retail sales data on Tuesday, followed by industrial production on Wednesday. The consensus estimate on retail sales is an increase of 0.3 per cent, sequentially, against May’s 1.2 per cent, following poor vehicle sales. Industrial production, however, is expected to have inched up by 0.2 per cent, month-on-month.
On Thursday is scheduled the weekly jobless claims data. On Friday we will have crucial housing starts data and the consumer price index. Analysts expect core CPI to have inched up in June.
The outlook for gold is not clear at this moment given that the Greece drama is not over yet.
With the Fed having expressed concerns over Greece and cautioning on slower US economic growth in its recent meeting and the IMF too lowering its global growth outlook to 3.3 per cent — the slowest pace since the 2009 financial crisis — it looks like the dollar may have some hiccups on continuing uphill. A weaker dollar may support gold, but its chart appears weak. Given that last week gold broke the crucial support at $1,148/ounce, a low of $1,100 looks possible. However, if there is momentum, it can crawl up to $1,180 and reach $1,200.
Domestic markets saw gold futures correct significantly. MCX gold closed the week at ₹26,058, down 1.12 per cent. MCX Silver contract too closed in the red at ₹35,615. This is because the rupee made some sharp gains against the US dollar in the last week.
Be cautious on your open positions in gold and silver futures. If MCX gold futures weaken further from here on appreciation, any, in rupee and drop below ₹25,800, it will test support at ₹25,500 and target ₹25,000. Any upside momentum may take the contract to ₹26,500 and ₹27,000. MCX Silver also looks bearish. It may move further down this week to ₹34,000. On a move up, it can test levels of ₹36,300 and ₹36,850.