Gold makes a comeback on Crimea crisis

Russia’s face-off with Ukraine over Crimea and the pessimism on China helped gold prices rally in a spectacular fashion last week. A strong job market report from the US was brushed aside and the yellow metal ended at a six-month high of $1,382.9/ounce, up 3.2 per cent.

The number of Americans filing for unemployment benefits fell in the week ending March 8 to the lowest since November. It dropped by 9,000 to 3,15,000. Analysts, though, had expected an increase in claims. Also, US retail sales rose in February for the first time in the past three months, with purchases up 0.3 per cent. The continuing flow of strong data from the US is making the case for a further cut in stimulus by the Federal Reserve (currently at $65 billion) in its policy meet next week, stronger. But this may not impact gold prices too much as the taper could be already priced in.

The euro gained against the dollar following the comments of an ECB official that the Euro Zone doesn’t run the risk of deflation. This silenced rumours of a further cut in interest rates by the ECB. The euro gained 0.2 per cent against the greenback to end at $1.3914 after hitting a high of $1.394. A stronger euro translates into a weaker dollar, which is conducive for gold, priced as it is in dollars.

Other precious metals, however, did not fully emulate gold. Silver logged a 2 per cent gain and closed at $21.40/ounce.

Platinum actually ended 0.8 per cent lower at $1,469.75/ounce, dropping from the intra-week high of $1,485.50.

Though there was a lot of action in the gold market internationally, the metal had a quiet week in India. Even the weak rupee didn’t help bullion prices much. MCX gold futures settled at ₹30,595/10 gm, closing 1.5 per cent higher.

MCX silver futures ended at ₹47,084/kg, up 1.9 per cent.

Last week, the rupee dropped from a seven-month high of 60.603 against the dollar to close at 61.19, driven by profit booking. A lower consumer inflation number for February at 8.10 per cent and reduction in trade deficit did support the currency to some extent. If the rupee strengthens and stabilises around 60.5-61.0, it will eat into gains in gold.

This week, gold will consolidate as the market digests the outcome of the weekend event in Crimea. At its March 18-19 policy meet, the Fed is likely to announce one more $10-billion cut in stimulus. Reflection of investors’ confidence in gold is seen in increase in holdings of gold-exchange traded funds. The SPDR Gold Trust — the world’s largest gold ETF — holds 813.30 tonnes of gold, up from 798 tonnes in the beginning of the year.

The US economic calendar notes the release of housing starts and CPI on March 18. On Thursday, the weekly jobless claims and existing home sales data will be released. Investors need to also keep an eye on data from China.

After the nation’s first-ever corporate default last week, there is increasing fear of a slowdown in China. The country’s economy has slowed significantly in January and February, with growth in investment and industrial production falling sharply. Any further negative news from China will be good for gold. The short-term outlook for gold is extremely positive.

However, if sanctions are imposed on Russia, it may lead to global financial turmoil. In such a case, gold may also fall, but less than other asset classes.

For this week, $1,400 seems an easy target. The neckline for the double-bottom pattern occurs at this level. On surpassing $1,400, the yellow metal can go further up. The next resistance could come around $1,433.

MCX gold futures are sticking to the ₹30,000-30,500 band. If they take cues from gold in international markets this week and move up, targets would be ₹30,750 and ₹31,574. Supports are at ₹29,630 and ₹29,500.

MCX silver futures broke above ₹47,000 last week. Though this is a positive for the contract, only a decisive move above ₹48,000 levels can change the trend to positive.

Targets on the upside are ₹48,000 and ₹49,100. Supports are at ₹45,690 and ₹45,000.