Gold breaks out after brief consolidation, climbs 2.19% this week; bullish momentum to sustain: Experts

Briefly gold and silver both received a shocker from US Treasury Sectary Janet Yellen who said that US interest rates may need to rise to prevent the economy from overheating as more support programs come online. Nevertheless, the markets ignored what Janet Yellen said yesterday, and saw the fact that the Fed may not be in a position to raise rates at this point.

Additionally, bullion also got a boost this week as several Fed officials expect monetary policy to stay super-easy for some time despite a recovery of the US economy.

The spot rupee rose by 0.77% against the dollar for the week.

The US dollar index slides 0.81 percent to close at 90.20 against the rival currencies. The dollar index ended with a loss of 1.15 percent during the week and at the lowest level since February 24.

The CFTC data showed that money managers increased their net long positions by 2,979 lots in the last week.

Gold ETF holdings witnessed inflows as holdings at SPDR Gold Shares rose to 1,025 tonnes from the previous week’s 1017 tonnes.

“Gold prices witnessed strong buying during the week hitting the 10 week high levels crossing the key resistance of $1,800 per ounce. Gold prices rallied on dollar decline and fall in US bond yields on clarification of US Treasury secretary Jennet Yellen over interest rates. The dollar index fell by more than 1% to 90.23 marks while US 10 year treasury yields declined to 1.58% during the week,” said Tapan Patel, Senior Analyst (Commodities), HDFC Securities.

“Gold prices got an additional boost from weak US job market data on Friday as US unemployment rose by 6.1% in April. The dovish Fed stance and slower US economic recovery are the key bullish factors for gold prices. The surge in commodities may add worries of higher inflation for the markets,” he said.

Kshitij Purohit, Product Manager, Currency & Commodities, CapitalVia Global Research Limited said, “MCX Gold futures decline in last two consecutive sessions and price is trading near 100 days SMA on the daily chart. If the 10-year yield calms down significantly, then it is likely that the gold markets will start to strengthen again from this level. If we clear Rs 48,400 levels, then we may next move towards Rs 49,700”.

Also read: Is silver ready to outshine gold, after rising 6% to Rs 71,500/kg this week?

The spot gold/silver ratio currently stands at 66.70 to 1 indicating that gold has outperformed silver. 

Spot gold settled with a gain of $15.95 at $1,831.13 an ounce in London trading.

Gold futures for June delivery rose by Rs 165, or 0.35 percent, to settle at Rs 47,760 per 10 gram with a business turnover of 9,761 lots. The same for August soared by Rs 231, or 0.48 percent, to Rs 48,150 on a business turnover of 4,575 lots.

OUTLOOK

Price action could again be dependent on the movement of the treasury yields and the Dollar in the coming week. However, non-farm payrolls tonight could also drive the markets in the short run. 

On the economic calendar front, we have the CPI, PPI and retail sales data, which are tracked by the Fed. 

Rising inflation will support gold as an inflation hedge, but also could tempt the Fed into action as well. However, in the medium to long term horizon, gold and silver could continue their upside momentum supported by the dovish Fed. 

Technical

Sriram Iyer, Senior Research Analyst at Reliance Securities said, “On the charts, LBMA Gold Spot has given a breakout above $1,800 and will need to sustain above the level to witness the continuation of the current bullish momentum. Resistances are at $1,840 and 1,865 and a break above both levels will push prices quickly to $1,900 levels. At the same time, a break below $1,800 will pull prices back to $1,775 levels.”

“Domestically, MCX Gold June has given a breakout above Rs 47,250 and will need to sustain above the level to witness the continuation of the current bullish momentum. Resistances are at Rs 47,950 and Rs 48,000 and a break above both levels will push prices to Rs 48,400”, Iyer noted.

Purohit anticipates there would be an initial decline in MCX Gold price in next week’s starting where we may find support near Rs 47,200-47,250 and this would be the correct range to buy in June contract for the target at Rs 48,400, maintaining stop loss at Rs 46,800

RECOMMENDATION

Reliance Securities advises its clients to buy Gold June futures above Rs 47,300 with a stop loss at Rs 47,100 and a target at Rs 47,800.

Patel expects gold prices to trade up in the coming week with COMEX spot gold resistance at $1,860 per ounce and support at $1,795 per ounce. At MCX, Gold June prices have near term resistance at Rs 48,400 per 10 grams and support at Rs 46,600 per 10 gram.