Gold prices continued with the weak trend of last week and closed in negative territory with a fall of around 0.47%. The precious metal saw volatility during the week, but gave up all gains towards the end of the week as prices corrected amid interest coming to a low of around $1730 an ounce. The key dynamic factor, which put pressure on gold, was the upward momentum in the dollar index, which gained strength from better-than-expected economic data and sharp comments by various Fed officials, emphasizing the need for further policy tightening by the US Fed. Gave. Bring inflation under control.
The greenback initially moved towards a two-decade high to test the 109.27 mark, but as the momentum eased slightly, gold capitalized on the same and saw fresh buying. Meanwhile, US GDP contracted at a 0.6% annual rate for the second quarter as expected, an upward revision from the 0.9% decline previously estimated. In another key data, the US Personal Consumption Expenditure Price Index showed signs of a moderation in energy prices amid softening inflation in the US, raising hopes that US price pressures could peak. US consumer prices rose 6.3% in July from a year earlier, compared to a 6.8% annual increase in June.
Furthermore, markets were eagerly awaiting the prospect of more aggressive rate hikes from Fed Chair Jerome Powell’s speech at the Jackson Hole symposium at the end of the week. The market is touting the possibility of a 50 or 75 bps rate hike at the Fed’s September meeting.
At the much-anticipated event, the head of the US central bank made a keynote speech and said the policy stance is likely to remain restrictive for some time to restore price stability. This again pushed investors into the safety of the dollar and diminished the appeal of gold.
Gold Price Outlook
For a further outlook, gold prices trade with a bearish bias and are vulnerable to some more selling pressure with short term resistance at the $1770 an ounce mark in the coming days. The price is likely to resume the lows again from $1720 to $1710 per ounce and then resume another upside phase. Domestic markets see a fall in prices 52,000 per 10g in the immediate short term and unless this is breached, prices may correct and consolidate for a while. However, from a medium-term perspective, any downside from 50,700 50,500 per 10 gm area should be considered as a buying opportunity for a higher target of around Rs 53500 per 10 gm. Eyes should be on the key support seen here 48,800 per 10 gram mark.
Gold prices rise in near future
Going forward, the major highlights of next week will be US non-farm payrolls and unemployment rate data, which will be watched eagerly by market participants to assess the health of the US economy. In addition, inflation data from Europe will provide some clues for next month’s ECB policy actions, while manufacturing data from the US, China and Europe will be on investors’ radar at the end of the week. The dollar index movement will be significant as the greenback breathed a sigh of relief after hitting a two-decade high of 109.29 but regained strength after finding strong support at 108 points. As long as the dollar holds above it, it will continue to be a major headwind for gold prices. Indian GDP numbers and industrial production figures during the week will also act as a major trigger for the rupee’s momentum, which will further impact domestic gold prices.
(The writer is Vice President – Currency & Commodity Research at Religare Broking)
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