Gold price breaks below key support
New Delhi-India (Jun 7) Global gold prices dropped sharply last week. They fell below $1,170/ounce to hit a low of $1,163.9/ounce on Friday as US jobs data was stronger than expected. The US economy added 2,80,000 jobs in May against analysts’ expectations of 2,25,000, up from 2,23,000 in April. Silver prices dropped even more sharply and closed at $16.11/ounce, down 4 per cent. Platinum ended at $1,096.4/ounce, lower by 1.4 per cent.
Worries over Greece’s future in the Euro Zone receded with Greece reaching an agreement with its creditors. The International Monetary Fund’s statement on Thursday citing uncertain inflation prospects in the US also pressured gold. With neither the inflation argument nor the much-feared credit default in the EU to lift gold prices, prices could correct some more. The week ahead has a light calendar. On Thursday, the routine jobless claims and retail sales data will be out, followed by the Producer Price Index for May from the Bureau of Labour Statistics on Friday. This can provide hints as to consumer prices. Crude oil will be a factor to watch. Last week, the Organization of Petroleum Exporting Countries (OPEC) announced that it will hold to its production at 30 million barrels a day for the next six months and not cut its output.
However, given that there has been a drop in the US oil rig count, there are possibilities of oil prices edging up.
Domestic market gold investors may, however, see a weak rupee temper the impact of any fall in international gold prices. Spot gold prices, which were at a discount of $4/ounce compared with international prices two weeks ago, are now at a minimal discount of $0.5/ounce. Listed gold-backed exchange traded funds are trading at about 1-2 per cent discount to their NAV.
Gold BeES from Goldman Sachs, the largest gold fund in India, trades at a price of ₹2,466.5 per unit, while its NAV is ₹2,499 — a discount of 1.3 per cent. Investors who already hold gold ETF units have to watch out. If you sell now, you would get a price lower than market value for each unit of gold. Unless there is a pressing need to exit, hold on. Gold futures on the MCX declined, but not to the same extent as international prices. MCX gold was down only 0.5 per cent for the week and closed at ₹26,721.
On the charts
As gold prices broke below their support at $1,170 last week, further downside appears to be on the cards. In the coming weeks, prices can re-test $1,163. If this support doesn’t hold, it can move further down to $1,150-1,148 levels. However, the first upside target from here will be $1,188 and the next at $1,193. MCX Gold may inch up to ₹27,000 this week.
A weak rupee may take it even up to ₹28,500. On the downside, the first support is at ₹26,300 and the next at ₹25,800.
MCX Silver dropped sharply last week not drawing any support from a weak rupee to ₹37,010. If selling pressure continues, it may drop even further to ₹36,800. On the upside, the first target will be ₹38,500 if the resistance at ₹37,825 is crossed.