Bullion prices remained confined within a range and slumped the most in a day in recent weeks as the US economy added more jobs in January compared with an increase in December, signaling right track for economic recovery.
This has helped the unemployment rate to fall till 8.3% from 8.5%. However, on weekly basis both gold and silver was able to maintain a consecutive fifth weekly advance. But, continued rupee appreciation for the fifth consecutive weeks, did not let the metals to grow at MCX. Week ahead we expect bullion prices will mostly be under pressure before which 4th February’s EU meet may provide support to the metals prices.
Fundamentally, market expectation regarding Fed’s injection of liquidity could be featured as bullions’ strength. But, better than expected labor sector growth might shed water on such belief. Therefore, gold might ease next week as QE prospects diminish with a bout of dollar strength likely to further weigh on the precious metal.
Greece once again remaining at the headlines, may default within March 20, 2012 as the committee is still struggling to tie any swap deal to disburse 14.5 billion Euros debt payment. Market expectations might have breached the level of patience for the last four weeks despite the deadline was set for 3rd February. Also, ECB’s rate decision is set to be announced on 9th February.
Although it is expected that they would keep the rate unchanged at 1%, anticipation still hovers about a rate cut for easing the debt payoff. Euro therefore seems to remain bit weaker against the dollar.
Nevertheless, we also need to check the probabilities at the most where in Greece can put lid on the default. As the European stability Mechanism is now about to revolve, Greek finance minister will brief the talks to complete a second financing package for the country on 4th February.
In such plan, ECB is ready to use its bond holdings to support the nation. Under the plan ECB could sell its Greek bonds to the EFSF at the price it paid for them rather than accept a loss along with private creditors. Besides, they may also give up profits for the Euro area banks or even can take losses on Greek bonds in their portfolios. Therefore, we might see Euro trading high at the week beginning.
Looking at the gold spot market, it has closed with a “Backwardation” of $14.05, a level seen after mid December. Gold therefore is likely to have a gap down opening for the week. PVO analysis however shows rise in volumes and open interest for gold, but the increment is much lower as compared to the last five weeks rally.
This might signal doubt is casting over for carrying buy position. For silver, open interest is continuously dipping and volume is also lowering from the prior week. Hence, we may expect weakness in both the metals might be coming up slowly.
Said above, we are expecting bullion prices to remain weak for the week ahead. Still, keeping the Greek news in mind, we recommend short position should be built up at higher levels.
Technical Analysis – Gold-Feb COMEX
As discussed in our earlier report, gold’s rally was extended to as high as $1763.25/oz, but by the end of the week prices have failed to hold the gains and slips to as low as $1720 levels and ended as a bearish engulfing candlestick pattern on daily charts, which is signs for the trend reversal in near-term perspective.
During the week prices opened at $1737.50 and made high of $1763.25 against the low of $1716.10 and finally settled at $1725.90/oz by -0.74% down from last weeks closing prices. Initial bias is remains neutral this week and some consolidation could be seen.
Principle of Fibonacci retracement states that prices are witnessing an immediate support at $1705 levels, which is 23.6% Fibonacci levels of its previous rally (starts from $1522 to $1763.25 levels), any sustainable close below the same will extend the losses towards $1671/oz which is coincides with 38.2% Fibonacci level.
Nevertheless any rally on higher side will restrict at $1737 levels, which is 38.2% Fibonacci levels for its weekly fall and expected to bring some selling pressure from the same. Weekly momentum indicator RIS-14 period has given down crossover by supporting the bearish momentum for the coming sessions.
Technical Analysis – Silver-Mar-COMEX
Silver prices rose to as high as $34.40/oz last week before making a temporary top there and turned into sideways to lower and ended in marginal negative zone on weekly basis.
During the weekly prices have made a high of $34.40 against the low of $32.93 and finally settled at 33.63 by -0.71% down by last weeks closing.
Initial bias remains neutral this week and some sideways momentum could be seen first. $32.90 levels will act as an immediate support on downside, by taking away the same will intact the near-term bearish view and extends the decline towards $32.40 and $31.25 levels, which 23.6% & 38.2% Fibonacci levels for its previous rally, starts from 26.14 to 34.40 levels.
However, on the other hand any rally above $34.40 levels will confirms that short-term topping not yet formed and continues the rally towards $35.75 levels, which is the previous swing high on higher side. Weekly momentum indicator RSI-14 period trading in neutral zone and showing neutral tendency.
Market Round-up: The week gone by, bullion prices confined within range but ended up with mild gains at COMEX. Rupee appreciation however kept the metals upside restricted at MCX.
Economic Events:
The Week gone by with the impact of Fitch’s rating down gradation of five Euro nations which includes Spain and France
The Meeting of the EU chiefs took place at the very beginning of the week which was led by the German deficit control treaty to endorse the plan of a 500 billion Euro rescue fund for this year
The EU finance chiefs could not reach any agreement to fill Greece’s widening budget deficit till the week end
Spain sold 4.56 billion Euros of bonds at a lower yield of 3.455 compared to 4.021 and France sold 5.6987 billion Euros of bonds with an average yield of 3%
Private employers added more than expected number of jobs in January compared with an increase in December, signaling an economic growth that may reduce the need for the Fed to expand stimulus
The Euro slid at the week end to have on overall fall of 0.46% on weekly basis. Dollar index on the other hand gained mild by 0.05% against the majors
Stocks markets remained strong as World equities measured by the MSCI all country world indexes, posted a 7th weekly gain of 2.22% while the Asian benchmark index rose 1.05%. On the other hand, the CRB Index, a bellwether for commodities fell by 1.13%
Precious Metal Show:
SPDR gold holdings increased to1277 tons from 1271 tons in the last week
The I-share silver holdings increased to 9621 tons from 9510 tons in the last week
Gold at COMEX gained by 0.28% and at the MCX the appreciated rupee restricted its gain
Silver futures for March delivery however fell a bit by 0.21% at COMEX and at MCX rupee appreciation fasten the fall till 1.87%
Courtesy: Karvy Commtrade Ltd.
