Gold Prices Witness Heavy Selling, Support At 28000-27700/10

MUMBAI: Gold futures ended the month down by almost 5 % as a broad-ly stronger U.S. dollar dampened the appeal of the precious metal while gains on MCX were also capped by local currency pair appreciation during the month. U.S. dollar was seen rallying to a one-month peak against the euro during the month, after the European Cen-tral Bank indicated that it could ease monetary policy as soon as next month. The month started with prices weighed down by a report showing that the U.S. economy added jobs at the fast-est pace in more than two years in April, but also showed weaker earnings growth and a drop in labor force participation. Howev-er preliminary data released during the start of the month showed that U.S. gross domestic product grew at an annual rate of just 0.1% in the first three months of the year, well below forecasts for an expansion of 1.2%. but despite that the Feder-al Reserve said that it would reduce its bond purchases to $45 billion a month. The Fed also said interest rates would remain on hold at record lows for a "considerable time" after the bond-buying program ends later this year providing some tem-porary support to gold prices.

Also intensifying ten-sions between Russia and Ukraine during the month strengthened demand for safe haven assets and tem-porary support on the down-side. Other factors which pressured Gold on the down-side were Fed Chair Yellen comments during the month which stated that the central bank expects U.S. economic growth to accelerate this year despite the slowdown in the first quarter. These com-ments came from the Fed president during testimony to the Joint Economic Commit-tee of Congress. This along with data showing U.S. hous-ing starts rising 13.2% last month, after a 2.0% increase in March. while sales of new homes rose by a larger-than-expected 6.4% to 433,000 in April, after two months of decline broadly weighed on precious metals prices in-cluding Gold. Along with this, domestic prices were also hammered in the physical markets, after India’s central bank eased gold import rules by allowing seven more pri-vate agencies to ship the metal, a move that industry officials said could increase supplies and reduce premi-ums in the peak wedding season.

Gold prices witnessed heavy selling during the entire month and marked negative closing in all four weeks. The prices broke down after form-ing a “flag” pattern on the weekly charts, which not only made the prices break its strong intermediate support of Rs 28000-27700/10 Gms but also confirmed an inter-mediate down trend in place after forming lower peak –lower trough formation. Go-ing forwards Rs 25500/10 Gms and Rs 24800/10 Gms are immediate support levels , a break below Rs 24800/ 10 Gms will be very negative for the prices for the medium term and will offer more downside for prices. On the flip side Rs 28100/ 10 Gms and Rs 29050/10 Gms are strong resistance levels that are likely to prevent the upside. At COMEX also the prices have broken below a “pennant” to close the month below its short term support of $1260/ounce. Going for-ward $ 1180/ ounce remains the next support for the pric-es while $1300-1310/ ounce continues to be the crucial resistance below which the bears will continue to domi-nate the show.