Is Gold’s Rally Real

Gold bounced late on Friday and is holding its gains moving into the new month. weakness in equities helped gold to boost its safe-haven appeal. Gold futures settled on Friday with a monthly gain of nearly 3 per cent, after a report on the US economic growth came in weaker than expected, pushing the dollar lower and lifting prices for the precious metal higher to a three-week high. Gold is exchanging at $1347.46 with silver at 20.50 and platinum continuing to outperform at 1155.

Gold saw further support as many investors believe that the Federal Reserve lacks the confidence to lift rates too abruptly without further signs of strength in the US economy. At its policy meeting this week, the Federal Reserve stopped short of indicating that a further increase in the US interest rates is on the cards for later this year.

Uncertainty over the path of interest rates has held gold in check since it rallied to more than two-year highs in the wake of Britain’s shock vote last month to leave the European Union. For the week, gold futures ended roughly 2.6 per cent higher. Meanwhile, for the week, silver futures saw a 3.3 per cent weekly rise and a 9.3 per cent run-up for the month.

Gold futures remained firm as potential traders in international and domestic markets made forward deals and there were some signs of firm market in coming days ahead of buying. The potential buyers remained busy in hedging as they were maintaining the market mechanism.

The gold hedgers made some cautious deals. The general buyers remained on sidelines anticipating easing in price in coming days on dollar-rupee parity.

Buyers made deals according to their immediate needs. Local trading in gold remained dull on back of insignificant buying.

On a technical aspect gold is above the trendline drawn off the June lows hinting a move higher may be ahead for the price of gold. A daily close above 1,351 would signal a bullish resumption by trading above the R2 Weekly Pivot Level. Alternatively, a reversal below the weekly opening range low at 1313.30 targets the 50% threshold of the May-July range at 1287.30. The Relative Strength Index is also looking to favor further upside.

Analysts were earlier betting on bullion to drop based on speculations that the Fed’s latest minutes would reflect a more hawkish tone.  The outcome of the FOMC meeting, however, reportedly spurred a bond buying spree, causing the bullion to soar.

Gold’s latest rally may have something to do with the concerns raised about the world economy. Although the Fed made it clear that the American economy is indeed getting better, its statement has left room for speculation on the outcome of its next meeting.

The FOMC statement acknowledged that the US economy is improving. However, it made no change in its forward-looking view on rates: they are supposed to remain low, with only gradual rises, and the decision being dependent on labor, inflation and international developments.