Gold Futures on Friday jumped after the US employment data disappointed and missed estimates. According to Labour department in Washington, payrolls climbed by 1,51,000 last month following a 2,75,000 gain in July. The forecast by Bloomberg was 1,80,000. Gold remained under selling pressure last week as there were comments coming from the US Federal Reserve that they might raise interest rate twice this year. Higher interest rate is negative for gold and silver. Now with disappointing jobs data, we may see interest rate hike in December and not in September. This gave boost to both gold and silver. We saw US dollar declining with major currencies appreciating against the dollar.
Gold this year saw gain of 25 per cent on account of uncertainty in US economy, Fed were holding off hiking interest rate and with Brexit, slowdown in Europe became apparent. Also Japan and Europe opted for negative interest rate which boosted the appeal for gold. Higher interest rate reduces the appeal for gold as it doesn’t pay interest like equities or bonds. Gold retreated 3 per cent in August on hawkish comments by Fed officials. Now traders are bidding up gold as they think the recent job data number isn’t strong enough to justify two rate hikes this year.
We are about to enter the best season for gold prices. September is on average the best month and October the third best month for the metal. According to a report from seeking alpha, historically gold rises from August to February and falls or consolidates from March to July. Also, September is the best month for gold, with average gains above 2 per cent, followed by January, with average gains above 1.5 per cent, and October, when gold rises on average over 1 per cent. The reason behind seasonality is demand as supply for gold is stable year round since metal is mined at a steady pace regardless of the weather conditions. Typically farmers after selling their products start buying precious metal as investment in the second half. Wedding season also starts in October and gold is often given as gift. So typically, consumption of physical gold increases during this period.
In MCX, Gold has made a double bottom at Rs 30,560 per 10 gram. So its safe to assume as long as gold is above Rs 30,500 per 10 gram, investors should be in long position. Any selling pressure will come if gold breaks the level of Rs 30,500. If it breaks then we may see correction till Rs 30,100. On the upside, gold will face next resistance at Rs 31,650 per 10 kg. Short term target for gold is Rs 31,300. So any investors should start booking profits from the level of Rs 31,300 and as long as it is trading above Rs 30,500, investors are recommended to be in long position.”
(The author is director at Tradebulls)