Weak US jobs data to support gold's rally past $1,300
San Francisco (Jun 4) Gold is likely to witness a sharp rally in short term on weak dollar following expectations of an ‘earlier-than-expected’ increase in the US Fed interest rates due to extremely disappointing non-farm payroll data.
Analyst forecast gold price to hit $1,300 an oz as early as next week following US Fed Chair Janet Yellen’s statement scheduled on Monday on the next round of interest rate hike. This will translate into gold price to touch Rs 30,000 per 10 grams in local currency.
Standard gold in the benchmark physical market at Zaveri Bazaar remained highly volatile last week following global trend and ended the week flat at Rs 28,655 per 10 grams. On Friday alone, gold nosedived in early trade but later gained nearly 3% to close the week at $1244.9 an oz.
“Weaker-than-expected US non-farm payroll data pushed expectations of interest rate hike very clearly. US Chair herself has been saying possibility of next interest rate hike in July which got support from the weak non-farm payroll data. This indicates a weakness in the dollar translating thereby a rally in gold prices. We, therefore, see gold price to see the next support level of $1300 an oz as early as next week which would be possible on actual statement from the US Fed,” said Gnanasekhar Thiagarajan, Director, Commtrendz.
Data published by US Fed on Friday showed US employers added only 38,000 jobs in May, the slowest in six years and much below analysts’ expectations of around 160,000. Interestingly, US earnings growth remained weak, rising just 0.2% on last month, down from 0.4% in April. Year-on-year, the earnings growth remained flat at 2.5%. Additionally, unemployment fell to 4.7%.
Following weak jobs data, the dollar plummeted by 1.25% against the euro, to euro 0.8855, its lowest since mid-May. Yellen, the Fed’s chair, is due to give a speech on Monday, indicating whether it is likely to raise rates at its next meeting on June 14-15.
Gold for delivery in August on the Multi Commodity Exchange (MCX) opened the week at Rs 28,753 per 10 grams and slipped later to Rs 28,640 per 10 grams later. Following the global trend, however, gold rallied sharply towards the weekly high of Rs 29,420 per 10 grams before settling finally at Rs 29,387 per 10 grams i.e. 1.89% higher than its previous week’s closing level of Rs 28841 per 10 grams.
“We expect gold prices to find resistance in the range of Rs 29,900 – 30,000 per 10 grams next week. Trading consistently above Rs 30,000 per 10 grams would lead towards the strong resistance at Rs 30,400 per 10 grams, and then finally towards the major resistance at Rs 30,900 per 10 grams,” said Anuj Gupta, Assistant Vice President (Technical Research), Angel Commodities Broking Pvt Ltd.
Physical buyers, however, remained absent from the street due to the lack of buying reasons. Gold is selling currently at a discount of around $10 per 10 grams in India. “There have been very lull sales over the last few weeks in absence of any wedding ceremony or any other festivals that may prompt buyers to visit stores,” said Kumar Jain, Director, Umedmal Tilokichand Zaveri, a Zaveri Bazaar – based jewellery retailer.
Silver is likely to follow gold of course with a lag of a month or two as seen in the past. But, according to Thiagarajan, silver has more potential for price hike than gold. Meanwhile, silver for delivery in July on MCX opened the week at Rs 38,501 a kg and corrected sharply later as expected to hit the low of Rs 38,270 a kg before bouncing back to Rs 39,291 a kg. This week, silver prices closed at Rs 39,079 a kg, a marginal 0.55% higher than previous week’s closing at Rs 38,866 a kg.