Bullion prices extended rally for the fourth consecutive week amid optimism of Fed easing and Greek swap deal.
Gold rallied to the seven week’s high while silver also advanced more than 6 percent. But the Indian rupee appreciation by 2.02% has restricted both the metal’s gain at MCX.
The unusual spike in prices may not continue in the next week. We therefore expect bullion prices might correct a bit at the beginning before it could build its rally.
Before the week starts, Credit rating of Italy and Spain and other three euro area were cut by Fitch ratings which said five nations lack financing ability in the face of regional debt crisis. Italy, the third largest economy of Europe was cut two levels to A- from A+. Spain also got reduced by two levels to A from AA-. Asians are yet to face the news and that might pressurize bullion prices at the very beginning of the week.
With the US set to release higher personal income, spending and manufacturing precious metals can feel the stress.
In between, ADP employment addition and lesser jobless claims may also create some strain on the metals. Most importantly, the nonfarm payrolls again are likely to add jobs but at a lesser pace.
Since, it is an essential component for restoring confidence for consumers and business; we won't say this report as being strong, rather it can be a positive report for the elements driving economic growth, which is the labor market. Therefore, this time market may not impact strongly upon the data.
However; US 5 year treasury yield fell to a third consecutive low of 0.7395% after slower than forecasted growth added speculation that Fed will expand asset purchase. This is a supportive factor for bullion prices.
Besides, the stalled Greek debt swap deal talk is likely to be continued as the EU commissioner told that the Greek government and negotiators were close to a deal, which could be inked on or before the weekend. Therefore, confidence is seen on finding a resolution that is expected to be reached and thereby might be supportive for the bullion prices.
We expect European Central Bank to accept some sort of haircut on its Greek bond holdings in an effort to stem the heightening risk for contagion. So, at least some sort of resolution over the matter could help Euro to gain in the next week and thereby supporting the bullion prices.
Interestingly, if the IMF and EU can reduce at least 0.5% coupon rate to be paid to the bond holders, it would then be able to manage 2.5% of the budget deficit! Indirectly, that will be reducing the implementation of tougher budget rules. So, this negotiation seems to be supportive for the Euro and hence bullion prices might shoot up amid such optimism.
Nevertheless, Gold is continuing to find favor with the traders’ participation and open interest. Volumes and open interest has been on a rising mode since last four weeks among which prior week has seen the highest volume and second highest open interest. So, PVO analysis is indicating gold price to be in the rally. However; silver open interest fell which might create some doubt over the price momentum.
The above analysis therefore shows some price correction to take place at the beginning of the week; which will then be followed by a price rally. Hence we recommend remaining long for the metals at lower prices.
Technical Analysis – Gold-Feb COMEX
A strong break-out through the symmetrical triangle opens the door for a rally in gold prices and finally settled in a positive territory. During the week prices opened at $1666.30 and made a high of $1739.80/oz against the low of $1648.80 and finally settled at $1738.80/oz levels by +4.37% up from the last weeks closing. Initial basis remains upside this week for further rally towards the next resistance $1772 levels which is also coincides with 61.8% Fibonacci levels of previous fall starts from $1921 to $1522 levels.
Also we can observe from the chart, gold prices have taken the support from short-term EMA’S of (10 & 20) levels and key technical indicators RSI-14 period and MACD both are trading in positive territory by supporting the bullish momentum and huge volume expansion at the time of triangle breakout also one of the strong aspect for supporting the bullish momentum.
However, on initial sessions of the week we are expecting some downward correction towards $1720 to $1705 levels which is 23.6% & 38.2% Fibonacci levels of last weeks rally, is going to suggest possible accumulation level for the fresh buying in near-term perspective. On the other hand any breakdown below $1666 will dampen this bullish view and flip the bias back to the downside for testing another low of $1630 levels.
According to Elliot wave count, we have concluded that prices have successfully completed the corrective wave structure of A-B-C pattern in primary wave 4. Currently we may assume that prices are trading in 1st intermediary wave of 5th primary impulsive wave which may confirms on the break of previous swing of $1802/oz levels and extends the rally towards the all time highs of $1921 levels in going forward.
Technical Analysis – Silver-Mar-COMEX
COMEX Silver prices rose to as high as $33.91 last week as extends the rally from $ 26.145 as expected. During the week prices opened with a positive note and continued the same in entire week. Last week prices have made a high of $33.91 against the low of $31.53 and finally settled at $33.87 levels by +5.35% up from last weeks closing.
Initial basis remains on upside and further rise should be seen towards the medium term projected target of $35.10 levels and break of the same will extends the rally towards the 50% Fibonacci levels of $37.80 levels on eventually. Weekly momentum indicator RSI- 14 period has given an upside crossover and trading at 0.52 levels by supporting the bullish momentum for coming sessions.
On the other hand any break down below $31.53 levels then only it will confirms that short-term topping has been formed and intact the bearish momentum.
Market Round-up: The week gone by, bullion prices maintained rally amid Fed easing, prolonged lower interest rate and Greek debt swap deal
Economic Events:
The Week gone by started with the EU finance ministers meeting to discuss new budget rules to protect indebted states and the proposed Greek debt swap. In an agreement parties were likely to swap old bonds for new securities with coupons averaging 4- 4.5%. Germany and IMF however are insisting on an agreement closer to 3%.
The Societe Generale, the second largest bank and Credit Agricole the third are the two French banks to have their credit grades cut from A+ to A by S & P after France was stripped of its rating earlier this month
Despite Republican opposition, the Senate on Thursday voted to allow President Barack Obama to increase the debt ceiling by $1.2 trillion, an amount large enough to ensure the federal government can pay its bills through the November elections
The Euro maintained rally amid Greek deal optimism and settled by gaining 2.23%. Dollar index slid by 1.73% as Fed assessed the weaker economy and prolonged the interest rate till 2014
Stocks markets remained strong as World equities measured by the MSCI all country world indexes, posted a 6th weekly gain of 0.84% while the Asian benchmark index rose 1.91%. On the other hand, the CRB Index, a bellwether for commodities advanced by 2.47%
Precious Metal Show:
SPDR gold holdings increased slightly to 1271 tons from 1255.67 tons in the last week
The I-share silver holdings decreased to 9510 tons from 9516.75 tons in the last week
Gold at COMEX gained by 4.12% and at the MCX the appreciated rupee restricted its gain till 1.83%
Silver futures for March delivery also advanced by 6.68% at COMEX and at MCX the gain was limited to 2.19%for the same reason
Courtesy: Karvy Commtrade Ltd.
