Gold price glitters on weaker dollar

Mumbai-India (Oct 11)  The recent pressure on bullion prices seems to be letting up, thanks to weakness in the US dollar. Global spot gold prices have surged 1.6 per cent in the past week to close at $1,156.5 per ounce. Gold prices, which had begun to rise a week ago following weak US jobs data, continued to get support from the dollar and poor economic data.

US exports, which fell 2 per cent in August, continued to be a cause for concern. The trade deficit widened sharply to $48.33 billion in August from $41.81 billion in September. Yes, the weekly jobless claims data was good and the claims fell to 2,63,000 as against market expectation of 2,74,000.

But the US Federal Reserve minutes for its September meeting showed that the Fed might not be in a hurry to hike interest rates. This overshadowed the positive jobless claims. As a result, gold continued to trade higher with no downside pressure.

Following recent economic data releases, hopes have revived in the market for a further delay to the beginning of Fed rate hikes. This saw the dollar index fall over a per cent to 94.81 last week. The weak dollar, in turn, helped bullion prices to surge.

Other precious metals witnessed a much stronger rally than gold. Silver, closing at $15.84 per ounce, was up 3.82 per cent. Platinum surged 8 per cent to close the week at $982 per ounce.

The strong rally in global bullion prices offset the impact of a stronger rupee on the domestic price. The gold futures contract traded on the Multi Commodity Exchange (MCX) closed 3.3 per cent higher at ₹26,622 per 10 gm. MCX-Silver futures closed at ₹36,833 per kg, up 11.8 per cent for the week.

The week ahead

Data releases from the US this week would need a close watch as dollar movements are driving gold prices now. The week is packed with important data releases. Retail sales and Producer Price Index (PPI) numbers are due on Wednesday. On Thursday, the Consumer Price Index (CPI) and jobless claims data are due, which will be followed by the industrial production data on Friday.

On the charts

The dollar index appears shaky with resistances at 95 and 95.25. The index can fall to 94 in the coming week. A further break below 94 can drag the index lower to 93.5 or even 93 thereafter. The weak dollar index suggests lower room for any sharp fall in gold prices in the near term.

Globally, spot gold prices have supports at $1,150 and $1,140. A rise to test the immediate resistance at $1,163 looks likely this week. A strong break above this resistance will open the doors for a further rally to $1,177 — the 200-day moving average resistance level. The price will come under pressure, for a fall to $1,130 and $1,120, only if the spot price declines below $1,140 in the coming days.

On the domestic front, the MCX-gold futures contract has significant support in the ₹26,300-₹26,200 zone. There is no immediate danger of a sharp fall as long as the contract stays above this support zone. Resistance is at ₹26,700. A strong break above it can take the contract higher to ₹27,000 initially. A further break above ₹27,000 will see the contract targeting ₹27,450 and ₹27,700 thereafter.

The contract will come under pressure only if it falls below ₹26,200. Such a fall can take it lower to ₹26,000.

The MCX-Silver futures contract looks much stronger than the gold contract with strong supports at ₹36,500 and ₹36,000. An immediate fall below ₹36,000 looks unlikely. Resistance for the contract is in the ₹37,500-37,700 zone which is likely to be tested again in the coming days. A strong break above ₹37,700 will open doors for a rally to the next targets of ₹38,500 and ₹39,000.

Source: TheHindu