Gold prices may find support as US reports fewer jobs

Sakina Mandsaurwala

Recently, we are witnessing higher price volatility in precious metals. MCX Gold prices slid to Rs 37,225 per 10 gram, however prices didn't stay lower for longer and rallied towards Rs 38,660 levels.

US Dollar has hit a multi-week high over uncertainty regarding a further rate cut by the Federal Reserve in October. Fed officials are of the view that the economy is strong and it doesn't need back to back stimulus. Fed Charles Evan says the economy is still on the path of 2.25 percent growth and Fed Clarida restated that the US economy is in a 'good place'.

However, the data suggests otherwise. US GDP growth in the second quarter fell to 2 percent, much below the first quarter GDP growth rate of 3.2 percent. The two weakest September reports ISM Manufacturing PMI and Service PMI also signal global economic slowdown.

The September labour market report released on October 4 showed employers added jobs at a moderate pace last month adding 1,36,000 last month, while monthly wage growth remained unchanged.

Even if the Fed does not cut rates in October, we believe gold prices will still benefit as the investor would remain disappointed by the global growth data.

We expect gold prices to remain supportive at lower levels as monetary policy will remain accommodative. Diwali season in India will also help provide some support to the gold prices though key to bigger price move remains the US monetary policy. Indian gold imports in August and September plunged creating hope of a rise in October.

We believe MCX Gold December contract may trade supportive at Rs 37,500 levels and on upside prices are likely to take resistance near Rs 39,000 levels in the coming week. Currently, MCX Gold Dec prices are trading at Rs 38,300 per 10 gms.

(The author is Commodity Analyst at Narnolia Financial Advisors Ltd.)

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