Gold takes a tumble

February 8, 2015

New York (Feb 8)  Gold traded in a narrow range in the early part of last week. But prices declined sharply on Friday. The global spot gold price moved between $1,255 and $1,286 per ounce through last week before declining to $1,228.48 in the final session.

The US non-farm payroll increasing by 2,57,000 in January and a sharp revision in the payroll data for November and December triggered this fall. Also, the average hourly earnings of employees rose 2.2 per cent on a year-on-year basis after falling to 1.9 per cent in December. All this positive data overshadowed the rise in unemployment rate to 5.7 per cent in January from 5.6 per cent the month earlier. The initial jobless claims rose at a slower pace by 11,000 to 2,78,000, much less than the market expectation of 2,90,000.

This is going to be a light week for economic data releases from the US. The retail sales data on Thursday is the only important number from the US, apart from the regular weekly jobless claims that would be released on the same day. The dollar index (94.65) is receiving strong support from its 21-day moving average at 93.56. The outlook is bullish. A strong break above the immediate resistance at 95 can take the index higher to 95.65 in this week. Further surge in the dollar index could keep the gold price under pressure in the short term.

Other precious metals also fell on Friday along with gold. Silver has closed at $16.73 per ounce and is down 3 per cent for the week. Platinum was down 1.4 per cent last and has closed at $1,223.75 per ounce.

The domestic gold prices were also knocked down following the sharp fall on Friday. The gold futures contract traded on the Multi Commodity Exchange (MCX) tumbled below ₹27,000 per 10 gm and has closed at ₹26,802 per 10 gm, down 3.9 per cent for the week. MCX-Silver futures contract, on the other hand, fell 2.8 per cent last week and has closed at ₹37,024 per kg. This is its second consecutive lower weekly close.

On the charts

The short-term outlook has turned bearish for gold after the sharp fall on Friday. Gold has broken its 200-day moving average support at $1,252. This could keep the bullion price under pressure in the short term. The fall can extend to $1,215 this week.

A further break below $1,215 can drag the yellow metal lower to $1,190 thereafter. Key resistances are at $1,252 — the 200-day moving average level and then at $1,260. The downside pressure will ease only if gold breaches the resistance at $1,260.

In such a scenario, gold could regain momentum to revisit $1,300 levels. But such a rally in the near term looks unlikely. On the domestic front, the MCX-gold futures contract has also tumbled, breaking below the 200-day moving average support at ₹27,305 per 10 gm.

The contract has immediate support at ₹26,650.

A break below this support can take it lower to ₹26,400 or even ₹26,000 in the coming week. Such a break will also increase the danger of revisiting ₹25,500 levels in the coming weeks. On the other hand, if the contract manages to bounce from the immediate support at ₹26,650, a relief rally to ₹27,300 or ₹27,500 is possible.

MCX-Silver futures contract is looking much weaker than the MCX-gold futures contract.

On the charts, the reversal from the high of ₹39,000 per kg last week suggests that the contract is attracting fresh selling interest in the market at higher levels. With resistance at ₹37,500, it is likely to extend its fall to ₹36,000 in the coming week.

Source: BusinessLine

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