Gold prices slip on stronger dollar and FED rate hike expectations, expect sideways to down move this week


By Tapan Patel

Commodity prices traded lower with most of the commodities in the non-agro segment extending downside as a stronger dollar lowered the bargaining power. Bullion prices declined on market expectations of aggressive FED in the July meeting. Base metals traded weak on lower demand from China along with a stronger dollar. Crude oil prices traded down on slowdown fears and weaker demand expectations.

Gold prices traded lower with spot gold prices at COMEX fell by 3.81% to $1742 per ounce for the week. Gold August futures at MCX fell by more than 2% at Rs. 50779 per 10 gram despite of rupee depreciation. The spot rupee fell by 0.27% at 79.25 against the dollar for the week. Gold ETF holdings continued outflows as holdings at SPDR Gold Shares fell to 1023 tonnes from the previous week’s 1042 tonnes. The CFTC data showed that money managers have decreased their net long positions in gold by 19831 lots in last week. 

Silver prices traded lower with spot silver prices at COMEX falling by 2.82% to $19.32 per ounce for the week. MCX Silver September futures fell by more than 1% at Rs 57131 per KG for the week. Silver prices managed to halt the south march supported by a recovery in industrial metals on the China stimulus announcement. The CFTC data showed that money managers have flipped to bearish from bullish on silver as short positions outnumbered long ones by 8309 lots.

Bullion prices extended their weekly decline as a stronger dollar and FED rate hike expectations continued to weigh on investment sentiments. Gold prices are stuck near $1740 levels in last couple of trading sessions as traders and investors are waiting for fresh triggers after US employment numbers failed to give clear direction. The Labor Department reported that U.S. employers added 372,000 jobs last month — some 100,000 more than what economists expected — while keeping to a jobless rate of 3.6% for a third straight month. The precious metals have capped the downside on economic growth fears holding 10-month lows while the upside is capped as US FED reiterated to hike interest rates to cool down record inflation. The surge in dollar index due to weaker global currencies has also dampened demand for safe-haven assets like gold and silver. The dollar index ended 1.78% up at 107 for the week.

We expect gold prices to trade sideways to down in the coming week with COMEX spot gold resistance at $1790 per ounce and support at $1680 per ounce. At MCX, Gold August prices have near-term resistance at Rs. 51500 per 10 grams and support at Rs. 50200 per 10 gram. COMEX Spot silver has near-term resistance at $20.30 per ounce with support at $18.70 per ounce. MCX Silver September has important resistance at Rs. 59800 per KG and support at Rs. 56000 per KG.

(Tapan Patel is a Senior Analyst (Commodities) at HDFC securities. Views expres the author’s own. Please consult your financial advisor before investing.


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