All that was written about Gold about the next downfall, proved incorrect till date. Safe haven buying returned lying a Torpedo which took out all the possible resistance levels. Silver proved that it is always the best ally of Gold and moved at a much faster pace than Gold.
Gold saw a very good recovery internationally and in the domestic markets last week. The main reason behind this upward movement of gold and silver prices was the ongoing Geo political crisis in Iraq and Ukraine. Gold has always been considered as a safe haven assets in times of crisis. Moreover, the equities market have been trading near record levels and have reached a saturation point.
On Tuesday, we saw the economic data coming in from US. Though the crisis in the Middle East was escalating, the attention was towards the two day policy meeting of the Fed where it was expected to further taper US bond purchases. Gold edged lower on Tuesday, backing away from the previous session’s three-week highs as a stronger dollar and possible thawing of Middle East-West tensions quelled appetite for safe-haven assets. Consumer prices reading were high which further raised the belief that the Federal Reserve was headed for more monetary tightening and it so did by announcing a further $ 10 billion reduction in QE3 programme.
There was no rush to hedge in the precious metal either after weaker U.S. home construction numbers for May indicated a softer economy in general. The Fed cut its U.S. growth forecast for 2014 from 2.9 percent to a range of between 2.1 percent and 2.3 percent, but it also expressed confidence that the U.S. economic recovery was on track.
As the Federal Reserve showed lack of commitment to lift interest rates and as the tensions in the Middle East continued to escalate, we saw gold surging over 3 per cent on Thursday. This gain has been its best in the past eight months.
Bullion hit its highest level in more than two months. Silver jumped as much as 5 percent, while platinum and palladium also climbed as new hurdles emerged to settling South Africa’s mining strike.
Gold edged lower on Friday as investors took profits after it posted its biggest daily rise in nine months, but was still set for its biggest weekly gain in four months due to conflict in Iraq and a softer dollar after the Federal Reserve’s comments.
As we all know, The key factor that has driven gold prices high is the current Middle East crisis and the Ukraine crises. Militants have routed Baghdad’s army and seized the north of the country in the past week, threatening to dismember Iraq and unleash all-out sectarian warfare with no regard for national borders. U.S. and Iranian officials discussed the crisis in Iraq on the sidelines of separate negotiations about the Iranian nuclear programme in Vienna. The news says US President is sending as many as 300 US military advisers to assist the Iraqi Army.
Fighting flared between Ukraine and pro-Moscow separatist forces, further straining a unilateral ceasefire declared by Ukraine as Russian president Vladimir Putin pressed Kiev to talk to the rebels. When gold is driven by geopolitical news, there’s a tendency that this has to keep getting worse for gold to improve.
Moreover there are few data releases from US which the market players believe will be positive and prompt the USD to appreciate. Looking at the above scenario we might see gold prices may though initially rise which eventually likely to turn down.
There is a possibility that the euro currency may also continue to depreciate which basically ECB wants so as to manage inflation and economic growth in the country. So any further decline in the euro currency might prompt USD to advance and by which may cap gold’s upmove.
These sorts of news are enough to shudder the market up and down. On a technical note, earlier I felt that the resistance near $1285 breaching which it might fuel to $1300 mark. Now the same levels would act as key support regions in short-term.
Gold has gained momentum much more than expected and may not rise substantially in the coming week as the overall trend remains down till the world economies are improving due to unprecedented stimulus packages offered by central banks across the work to support their currencies.
To top that I also feel that gold prices in the domestic market will get further support out of a minor depreciation of the rupee. hence I think buying on dips would be advised.
Gold is expected to range between $1277 – $1340 in the international market and Rs.27,500 – Rs.29,500 in the domestic market.
While silver is expected to range between $20.00 – $21.30 and Rs.43,500- Rs.47,000 in the international and domestic markets respectively.