Gold retreats from record high on stronger dollar

Spot Gold prices ended in the green on Thursday but prices retreated from record highs as a stronger dollar capped the upside. Despite strength in the dollar, gold prices touched a high of $1,195/oz yesterday. Interest in gold buying by central bankers supported the upside as the International Monetary Fund (IMF) said that it sold 10 tonnes of gold to the Central Bank of Sri Lanka. This shows that there is a sharp rise in the interest of central bankers to raise their gold reserves. Central bankers are prepared to expand their gold reserves despite the current high gold price levels. This move by central bankers also indicates that markets are highly bullish on the future prospects of gold.

In the coming days, we could hear of more news on investment demand by central bankers. That will continue to provide upside support to gold prices. Weakness in the dollar will also help to fuel the upside in the dollar-denominated commodity. Reserve diversification move by the non-G7 central banks underscore investor detachment from US dollar assets and is clearly reflected in the price rally of gold.

Bullion prices could peak to fresh highs as various central banks express their interest in buying gold and persistent dollar weakness will be the major driver.

US interest rates are expected to remain low for an extended period and that may continue to trigger a downside in the Dollar Index from the short-term perspective. Gold prices have risen around 30% since the start of the year and weakness in the dollar has been a major aid to the rally. Fundamentals like low interest rates would continue to be bearish for the dollar and further buying in gold could emerge as investment demand has emerged. Doubts about a nascent economic recovery and jitters among central banks, some of which have diversified away from the dollar, have raised gold's allure as a safe haven asset.

Gold prices could cross the crucial $1200/oz mark as the upside will be backed by a weaker dollar. High investment demand from central banks and news of central bank buying will trigger further upside.

On intraday basis, Spot Gold prices have immediate support at $1180/$1173 whereas resistance is seen at $1198/$1204. Spot Silver prices shall find support at $18.30/$18.15 whereas resistance is seen at $18.85/$19.05.

MCX Dec Gold has support at 17800/17615 whereas resistance is seen at 18110/18240. MCX Dec Silver shall find support at 28430/28185 whereas resistance is seen at 28840/28985 levels.

Courtesy: Angel Commodities

Want to get Futures prices on your mobile? Click here