Gold prices decline on USD strengthening

Gold prices declined further in Asian trade on Friday after the Federal Reserve move strengthened the dollar. The Fed, to the surprise of investors, hiked the discount rate by 25 bp. to 0.75%. The dollar rallied against the euro, which hit a nine-month low on Friday at $1.3443 after the Fed's move to raise the discount rate stoked expectations that it was moving towards "normalization" of monetary policy. Gold, which is negatively correlated with the U.S dollar, dropped sharply from $1120 to $1102 per troy ounce on yesterday’s news. Also yesterday, the International Monetary Fund (IMF) announced it will sell 191.3 tons of gold on the open market.

Yesterday’s macro data did not impact the market like the Fed’s decision. PPI increased to 1.4% (against the 0.7% forecast) while the Philly Fed Manufacturing Index grew to 17.6 points (above the 16.9 forecast).

As seen on the chart below, the gold market is aiming its first support level at $1095. Breaking this support can pull the market down to $1075, which is the 61.8% Fibo retracement level of the last upward movement. A bullish signal will be given by breaking the resistance at $1125 with the next target being at $1145.

The prices of gold will depend much on the dollar’s behavior and it seems that its appreciation will last for at least some time. Macroeconomic publications that can affect the dollar (and indirectly the gold market) include the CPI report from the U.S (7pm Mumbai time) and NY Fed’s President, William Dudley’s, speech at an economic conference in San Juan.

Dipak Sharma

X-Trade Brokers Services India Pvt Ltd.