Bullion prices bided high going into the weekend, poised to post third consecutive higher weekly close; with silver leading the way. U.S. dollar declined as the sentiment improved in the market and optimism over the Fed stimuli spread wide after the downgrades last week failed to prevent European nations from higher borrowing cost.
Week ahead we expect bullion prices to remain elevate as the Fed meets again next Tuesday and Wednesday. Officials are preparing to include two key elements: the interest-rate projections and a statement explaining their objectives for inflation and employment.
It is expected that Fed is likely to step in with $1 trillion easing as soon as this month and the central bank may bind to buy the mortgage backed securities with an objective to drive down the interest rate even further from the current record low level to spur confidence into the economy.
So, the FOMC to leave the current monetary policy unchanged. In addition, the GDP figures for the fourth quarter are expected at a strong 3.0% expansion compared with the prior 1.8%. Apparently this looks to be a supportive factor for gold. Since easy money bids higher price for gold, the metal is likely to see a continued uptrend.
Nevertheless, the International Monetary Fund’s move to a likely push for another $500 billion in further lending resources has helped lift the euro. But, the deficit control treaty set by Merkel, ruled a correction mechanism which will be triggered automatically in case of significant deviation from a target deficit of 0.5% of GDP, may restrict the gain in Euro. In other words, a tougher rule on budget deficit is a barrier to the currency’s gain.
Nevertheless, traders will also be closely monitoring the developments from the 17-bloc euro nation and the European leader’ latest moves to contain the debt crisis. So, we expect volatility to persist through the sessions this week. Moreover, several euro zone nations are preparing for bond auctions, where all eyes will be focused on the yields and demand on those bonds.
Besides, international market is seen to be in “Backwardation” which confirms a higher spot demand and prices for both gold and silver. Even the CFTC data showed traders to bet for higher silver prices. These all indicate a north bound move for the bullion prices will continue.
However, the PVO analysis shows something else. Bullions’ ascending price move was not actually supported by the volumes and open interest. We can say market is running out of traders willing to open or hold an open long/buy. A higher probability the market is set to retrace in price lower at some point forward. That is why we are expecting market to exhibit a volatile move.
In short, it is the anticipation over the Fed stimuli which may keep the bullion prices to an elevated level at least till mid of the week after which they might retreat. Hence, we recommend remaining long for the metal to encash the opportunity at the beginning of the week.
Technical Analysis – Gold-Feb COMEX
COMEX Spot Gold continued trade in a narrow positive zone for the third consecutive week. During the week gold prices declined slightly but held its ground above $1630 levels and ended in a positive zone.
Last week prices have made a high of $1666.75/oz against the low of $1630 and finally settled at $1666/oz levels by +1.65% up from the last weeks closing.
Initial basis remain neutral this week and expected to see the further rally towards the next resistance of $1676/oz (sloping trend-line), any sustainable close above the same will intact that short-term bottom has been formed and extends the rally towards the next resistance of $1724/oz levels which is 50% Fibonacci of the previous fall from the all time high of $1921 to $1526.
However $1630 levels will act as an immediate support on downside, on break the same will pull the prices into near-term consolidation phase of $1610 - $1678 levels, an upside crossover in weekly RSI-14 period and a gradual accumulation in volumes also supporting the bullish momentum for short-term perspective.
Technical Analysis – Silver-Mar-COMEX
COMEX Silver prices traded highly volatile last week and finally settled in a positive note. During the week a strong pullback from $29.43 levels helped the prices to violate its key falling trend-line resistance and managed to settle well above the same. Last week prices have made a high of $32.15 against the low of $29.43 and finally settled at $32.15 levels by +8.18% up from last weeks closing.
Initial basis remains on upside and further rise should be seen towards the medium term projected target of $35.00 levels, which also coincidence with 38.2% Fibonacci levels of the previous fall, starts from $49.89 to 26.15levels. Weekly momentum indicator RSI- period has given an upside crossover and trading at 0.51 levels by supporting the bullish momentum for coming sessions.
Market Round-up:
The week gone by, bullion prices moved high with support from the Euro and optimism over the Fed meeting to introduce another round of easing. Also, market took cues from the string of downgrades by S&P for several European nations and the lingering crisis once again came into the spotlight
Economic Events:
The US jobless claims fell to a four and half year low level
The yield on France’s 10-year bond dropped four basis points to 3.03 percent. Spain’s 10-year yield fell four basis points to 5.19 percent. Italy’s 10-year bonds dropped two basis points after climbing 22 basis points and thereby retaliate to the down grades
The EFSF issued 182-day bills worth 1.5 billion Euros a day after the fund lost its top credit rating at an average yield of 0.2664%. A smooth bill auction amid crisis encouraged the Euro to remain strong
The Euro revived smartly after a successful French debt auction, shrugging off down grades by S&P. Dollar index slid by 1.67% despite the economic releases showed improving economic recovery
Stocks markets remained strong as World equities measured by the MSCI all country world indexes, posted a 5th weekly gain of 2.88% while the Asian benchmark index rose 3.29%. On the other hand, the CRB Index, a bellwether for commodities advanced by 0.72%
Precious Metal Show:
SPDR gold holdings increased slightly to 1255.67 tons from1254.15 tons as of January 20th
The I-share silver holdings remained unchanged at 9516.75 tons in the last week
Gold at COMEX gained by 0.2.04% and at the MCX the appreciated rupee even restricted its gain
Silver futures for March delivery also advanced by 7.29% at COMEX and at MCX the gain was limited to 5.18%for the same reason
Courtesy: Karvy Commtrade Ltd.
