Gold Still Bearish On Strength In US Dollar Index

Weekly Outlook: Overall we feel prices continue to trade in a broad $20-25 per ounce range between $1230 on the lower side and $1255 on the higher side. While a major move in either direction would be watched closely for further constructive move into the commodity, our bias continue to be weak. On Technical grounds too, for the last three weeks we had been mentioning about the critical resistance zone near $1250-1255 per ounce.

Until and unless that zone is breached firmly, we would continue to hold our bearish bias in the commodity. Our anticipation on the Rupee also strengthens our view wherein we feel broadly the currency would continue modest appreciation against the USD backed by local factors, notwithstanding the fact that we have a positive bias in the US Dollar Index.

MCX February Call: Sell at 29160-29180 TP 29065/29000 SL 29251

Daily review: In yesterday’s daily bullion insight report, we expected the gold price trend to remain cautious while we also suggested remaining on the sell side for momentary trades. Eventually, gold prices both at the global and local market ended at $1236.60 and Rs 29,150 respectively. As also discussed, there were no major developments and events in the market which kept prices mostly steady.

Outlook: Early in the Asian session today, spot gold is trading at $1233, down by $3 from the previous close. Nothing much has changed in the trend overnight while the short-term bearishness is still intact. Therefore, the markets are trading steady in the Asian session.

As the day progresses, we believe that the market may initially trade down while it may remain volatile later. As discussed in yesterday’s report, we are not going to see hefty movement in prices until the 29th of January- the FOMC meeting in the US. As far as today is concerned, gold investors still worry about lower investment demand while also expecting Fed to further taper off its bond buying programme. Hence, prices are remaining under pressure while trading participation is still low.

Meanwhile, the gold and euro’s broken relationship is still intact, while we believe that both may trade down in today’s session. On the other hand, the US dollar is continuing to trade down after the IMF forecast global economy growth to rise from 3.60% to 3.70%. Coming to economic releases today and their impact on gold, we have the Chinese HSBC Manufacturing index which might show a slight improvement and because of which Asian equities might trade higher and so, gold as an alternate asset class might continue to drift down. Later during the day, we have the euro-zone, French and German Manufacturing and services PMI data.

We believe that these data might show a slight improvement from the previous month and because of which the euro might turn volatile, the impact of which could be felt on gold prices. Looking at the above factors and market scenario, we believe that gold may initially trade down while a good amount of volatility could be observed. We continue to suggest momentary trades on gold for the day.

Global market analysis: Global equities posted a mixed close, currencies were more or less down except a few like GBP, and commodities are ruined by their own fundamentals. This morning Asian markets are trading mixed, gold and silver prices have extended loss, crude oil is trading moderately down from its previous day’s substantial gain, while most of the base metal ended lower from their highs witnessed in the yesterday`s trading session. During the early morning trade we had HSBC manufacturing PMI number from China which declined to a six month low of 49.6 indicating slowdown in the world`s second largest economy.

As the day progresses, we hold a bearish view on bullion while we also expect a good amount volatility to be noticed especially in Silver ahead of PMI manufacturing numbers from Euro-zone, German and French in the afternoon. During the evening session we have Jobless claims, Chicago fed activity index and Existing Home sales number which are expected to be more or less in line with the market expectations. It’s very much likely that silver would rebound during European session and again turn down in the US hours. Hence, we would not suggest a ratio strategy on today’s trade (gold and silver).