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Gold Is Likely Take Cue from Currency Market

 Gold has traded in wide range of 905 dollar to 955 dollar in last few weeks.  The yellow metal did not show any lustrous move in the same period rather it followed the moves of currency market. It tracked the Euro and US dollar. The lack of risk apatite and gains in equity indices led the aversion of US greenback. US Dollar index, the gauge for US dollar against six major currencies, has been falling for last few sessions and it is likely to continue the fall in coming days, meanwhile the other major currencies like euro and pound posted significant gains vis-à-vis dollar.

The physical demand of precious metal has lost its way amid rising prices. India, the largest consumer of the metal, is facing the weak demand in domestic market due to higher prices and recently rise in import duty also affected the sentiment of physical traders. Therefore investment demand has to be improved for the next upward movement. The demand of yellow metal will suffer a further setback in the near term, since the inflation is far enough from current scenario.

The Euro has crossed six week high recently and looking good for further gains and same time dollar index has broken the six week low and trading below 79 levels. The British sterling has also performed well against the US greenback and trading above 1.64 levels. The US dollar index is paused for further decline and technically it may break the critical levels of 78 and next it can test the psychologically important level of 75 and meantime euro may touch the levels of 1.48.

 Hence aforementioned move of currencies can bring the upward movement in the gold and other commodities. As mentioned in earlier article that gold may jump from 892 dollar bounced from the psychologically important levels of around 900 dollar. At present technically gold is trading above critical 100 day moving average comfortably and likely to continue upward movement to the 990 dollars. And Fibonacci retracement (form 864dollar to 990 dollars) is also showing that gold has taken good support as shown in the figure. 

Even though yellow metal do not have favorable ambience especially looking at slackened physical demand and low level inflation but investment demand may pick up because of long term inflation fear and upcoming marriage and festival season may also develop the positive sentiment in physical market of the India therefore the prices of the metal may touch the 990 dollar levels in coming weeks.