Gold gains sheen on renewed US-China tiff

Mumbai-India (Aug 4)  It was a volatile week for gold. The global spot gold prices began the week on a stable note. But events in the second half of the week led to a volatile price movement. Prices tumbled to test $1,400 per ounce on Thursday, but managed to claw back and surge to a high of $1,450. The spot gold prices came off from the high and closed the week at $1,440.83 per ounce, up 1.5 per cent.

Two major events triggered the volatility. One, the Fed’s rate cut by 25 bps was widely expected by the market. But the Fed Chairman in his press conference indicating that the current rate cut is just a “mid-cycle adjustment” and there may not be further rate cuts, dashed the hopes of the market which had been expecting three rate cuts by the end of the year.

The Fed meeting outcome saw the US dollar index surging above 98 to test 99. As a result, gold tumbled from around $1,430 to test $1,400 and was threatening to decline below this psychological mark. But the impact of the Fed decision was short-lived. Trump’s decision on Thursday to levy fresh tariffs on Chinese goods, led to gold prices moving up again. The new tariffs on China triggered a sharp sell-off in global equities. Gold, in turn, rallied on a safe- haven bid and the price of the yellow metal surged to the week’s high of $1,450.

The renewed trade tensions between the US and China and the weakness in global equities may continue to aid gold prices.

Gold outlook

The near-term outlook is positive for gold. The global spot gold ($1,440.83 per ounce) has support in the $1,435-1,430 region. As long as gold trades above this support zone, a rise to $1,460 looks likely in the coming days. A break above the intermediate resistance at $1,450 can trigger this rise. A break above $1,460 will see the up-move extending to $1,470. Gold will come under pressure only on a sharp fall below $1,400, which looks less probable in the near term.

Silver underperforms

Silver prices failed to gain strength in tandem with gold. The global spot silver prices fell in the past week. The prices tumbled from around $16.60 per ounce to test $16 during the week. Silver has closed at $16.20 per ounce, down 1.2 per cent for the week.

The price action on the chart indicates that silver lacks strength to decisively breach $16.60. This leaves the near-term outlook negative for silver; a break below $16 and a fall to $15.75 or even lower in the coming days is possible. A strong break and a decisive close above $16.6 is needed to bring back the bullish momentum and take the prices higher to $17.

BusinessLine