Central banks will play an important role this week as the Fed, Bank of England and Bank of Japan hold their policy meets .
Comex gold prices traded rangebound in the previous week, with limited volatility, as market participants waited for the Federal Reserve policy statement that will be released this week. Gold, however, has been volatile on the MCX due to the rupee factor. Comex prices have been trading around four-week low following a thaw in the US-China trade conflict and.
Over the last couple of months, gold on Comex has been consolidating in a broad range of $1,500-$1,550 despite uncertainty in global markets.
On the trade war front, both the US and China have softened their stance. Last week, gold prices were weighed down after US President Donald Trump welcomed China's decision to exempt some American anti-cancer drugs and other goods from tariffs and announced a short delay to planned duty hikes on billions worth of Chinese goods.
Trump said he hoped to reach an agreement with China following more than a year of tit-for-tat tariffs that have roiled global markets.
After shrill rhetoric of the past few weeks, leaders of both the countries showed interests in meeting and talking out the differences.
These actions brightened the chances of an end to the trade tussle and took markets by surprise, though there are many ifs and buts to be sorted out before the final outcome is reached.
This week, the focus will be on policy statements of central banks, starting with the Federal Reserve, followed by the Bank of England (BoE) and the Bank of Japan (BoJ).
Last weekend, the Fed Chairman did offer some hawkish comments but did not really trigger a move for precious metal. He gave a positive outlook, saying that the US economy was in a good shape and despite the uncertainties, he does not expect a recession.
The European Central Bank also released its monetary policy statement, with the governor announcing a deposit rate cut by 10bps, from -0.4 to -0.5. With this, the bank also restarted QE at 20 billion euro a month.
On the economic calendar, market participants were keenly keeping an eye on the retail sales number, which was better-than-estimates. Inflation also witnessed marginal pick up in August, rising by 0.1 percent compared to rise of 0.3 percent the previous month.
Investment demand for gold dropped by 9.38 tonnes for the week ended September 15 and SPDR holdings currently stand at 880.37 tonnes.
On other hand, holding in ishares ETFs decreased by 224.03 tonnes and stands at 11800.62 tonnes. CFTC position suggests that speculators continue to remain bullish on both gold and silver since December 2018.
This week, on the data front, market participants will be keeping an eye on the housing numbers, existing home sales and housing starts from the US.
Apart from the economic numbers, central banks will play an important role this week, as three major central banks Fed, BoE and BOJ have their policy meet scheduled.
Further dovish comments from these central banks could extend gains for the yellow metal. Macro uncertainties will also weigh, as any update on the US-China trade war or Brexit will create volatility in the market.
MCX gold continued its weakness for the second consecutive week and is indicating further weakness in the price for short- term. However, 14-period RSI indicates that the prices may recover from current levels. Immediate support is at Rs 37,300. But, a sustained break below the support zone is likely to confirm further weakness in price towards Rs 36,600 mark. Resistance is capped at Rs 38,350–38,650 area. Buying is thus advised. Immediate key support for spot gold is at $1,480, whereas short-term support is at $1,460. Resistance is at $1,535 level.
MCX silver traded in a negative trend last week, but managed to hold its important support level of Rs 45,500. Also RSI is indicating recovery in prices. Immediate support is at Rs 45,500. However, a sustained break below the support zone is likely to confirm further weakness in the price towards Rs 44,000. Resistance is capped at Rs 49,000–49,200 area. Buying on dips is advised. Resistance for spot silver is at $18.25-18.47, whereas support is at $17.35 – 17.15 levels.
(The author is Vice President - Commodity & Currency Research at Motilal Oswal Financial Services Limited.)Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.The Great Diwali Discount!
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