Gold prices jumped by 1.53 percent during the week to settle at Rs 48,404 per 10 gram on choppy trading, a weak dollar and benchmark yields. However, rupee appreciation capped the upside. The yellow metal was supported by rising COVID-19 cases in Asia, a fall in the value of cryptocurrencies and the continuing easy money policies of global central banks.
The yellow metal dropped in three out of five trading sessions on the MCX and ended the week with a gain of Rs 728. COMEX gold, on the other hand, rose $ 38 or 2.06 percent during the same period.
The bullion metal has been trading higher than 20, 50 and 100 days’ moving averages but lower than the 5 and 200 days’ moving averages on the daily chart. The momentum indicator Relative Strength Index (RSI) is at 62.45, signalling bullish sentiment in prices.
The precious metal gave a breakout above 200 days’ simple moving average to head towards the $ 1,900/oz level.
Initially, prices did witness a small correction as the Federal Reserve signalled that a discussion on reducing its bond-purchasing programme could be soon on the table.
The Fed continued to maintain its stance on inflation saying that the current price increases which have led to rising inflation are likely to only have transitory effects on inflation.
However, prices recovered despite the Fed taking a hawkish stance on interest rates.
The data remained a mixed bag this week and suggests that the US economic recovery appears uneven and possibly will be insufficient to support tapering soon and lent support to gold.
Cryptocurrencies retreated sharply after China banned its financial institutions and payment companies from providing services related to cryptocurrency transactions, and warned investors against speculative crypto trading that attracted investment in bullion.
The CFTC data showed that money managers increased their net long positions by 11,311 lots in the last week.
Prathamesh Mallya, AVP- Research, Non-Agri Commodities and Currencies, Angel Broking Ltd said, “Weak dollar, fear of inflation and the increasing COVID cases in Asia are turning the heat on gold prices. We are not over with the pandemic yet, most of the global world is in a second and third wave of the virus which makes growth look hazy and the central banks promise to do whatever it takes to bring back normalcy in the economy. These are push factors for gold prices to rise.”
On the data front, a Labour Department report showed fewer Americans filed new claims for unemployment benefit.
The US dollar index marginally rose 0.25 percent to close at 90.01 against the rival currencies, while US 10 year treasury yields fell to 1.623 percent during the week. The dollar index ended with a loss of 0.35 percent through the week and touched a low of 89.63.
The spot rupee continued its uptrend and rose by 0.62 percent to hit an eight-week high of 72.83 against the dollar for the week.
Gold ETF holdings witnessed inflows as holdings at SPDR Gold Shares rose to 1043 tonnes from the previous week’s 1028 tonnes.
“Gold prices reported third weekly gain with prices facing strong resistance near $ 1,900 per ounce. Gold prices rallied supported by weaker dollar and fall in US bond yields while traders and investors continued their bets on rising inflation worries. The speculation over Fed minutes and market talks of hawkish Fed stance capped upside in the yellow metal,” Tapan Patel, Senior Analyst (Commodities), HDFC Securities, said.
“Major central banks have warned of higher inflation which may lead to ease in stimulus packages. The White House said on Friday it had pared down its infrastructure bill to $ 1.7 trillion from $ 2.25 trillion. Gold prices will get support from inflation hedge while liquidation in cryptocurrencies may attract investment into safe-haven assets,” Patel added.
Kshitij Purohit, Product Manager, Currency & Commodities, CapitalVia Global Research Limited, said: “Gold took resistance of 50 weekly SMA near Rs 49,000. However, metal had a good run as Fed continued to maintain its stance on inflation. Yellow metal close strongly last week and any dip near Rs 48,000 is a strong buying opportunity in the Gold.”
The spot gold/silver ratio currently stands at 68.28 to 1 indicating that gold has outperformed silver.
Spot gold settled with a slight gain of $ 4.11 at $ 1,881.21 an ounce in London trading.
Gold futures for June delivery slipped by Rs 105, or 0.22 percent, to settle at Rs 48,439 per 10 gram with a business turnover of 5,721 lots. The same for August declined by Rs 150, or 0.31 percent, to Rs 48,910 on a business turnover of 8,835 lots.
According to the latest dot plot from the Fed, there will be no change in interest rates throughout 2021. As far as 2022 goes there were only two voting members that believe that rates should be changed in 2023.
While the Fed has made it clear that it will act on the data and if the data changes so will the monetary policy, as of now, it remains committed to accommodative stance as the economics and employment begin to rebound.
So data may be keenly awaited by investors in the coming few months or so. But next week prices could continue to gain traction on the back of accommodative Fed and weaker dollar and subdued yields.
On the economic calendar front, next week the US is expected to release Consumer Confidence and Durable Goods data, which could have an impact on prices.
Sriram Iyer, Senior Research Analyst at Reliance Securities, said, “On the charts, LBMA Gold Spot is sustaining above 50-Weeks Moving Average above which could see a bullish momentum in the coming week as it holds a strong support near $ 1856-$ 1835 from which it could bounce back to $ 1895-$ 1920 levels.”
“On the domestic front, MCX Gold June could continue its bullish momentum next week with immediate supports at Rs 48,200 and Rs 47,700 whereas resistances are at Rs 48,900 and Rs 49,600,” Iyer noted.
For the upcoming sessions, MCX Gold future likely to continue its bullish momentum towards a psychological level of Rs 50,000. Traders are likely to go for a buy-on-dips opportunity around the level of Rs 48,050- 48,000, keeping a stop loss at Rs 47,600.
Patel expects gold prices to trade up in the coming week with COMEX spot gold resistance at $ 1900 per ounce and support at $ 1860 per ounce. The break above $ 1900 may lead prices towards $ 1920 levels. At MCX, Gold June prices have near-term resistance at Rs. 48900 per 10 grams and support at Rs. 47800 per 10 gram.
Mallya sees gold prices to move higher towards Rs 51,000/10 gms mark in a month perspective and 46000-47000 zones stand good for accumulation with a stop loss of Rs.44000 per 10 gms.