Gold recovers as Fed taper fears recede but prices are still beholden to inflation data

GOLD prices spent most of the week retracing from Monday's sell-off and took a breather towards the weekend, as investors weighed data showing a steady jobs market recovery against a rise in producer prices, while the debate continues over when the Federal Reserve will start to ease stimulus.

Yet uncertainty remains as a deceleration in US consumer prices data was negated by sharp gains in producer prices. The dollar and bond yields were of little help in ascertaining the immediate price action of gold as the instruments reacted, as expected, inversely to gold prices as US economic reports were published this week.

Gold prices on Monday extended previous sharp losses with a 4.4 per cent freefall to a 4¼ month low of US$1,675.90 an ounce. The day's trading range of US$100 was huge even for the gold trade. The low price attracted nimble value traders and bargain hunters, besides physical buyers. By closing on Monday, gold had recovered almost US$50 an ounce above the intraday low. A rally in the Dollar Index to a two-week high on Monday along with higher 10-year T-note yields up at a three-week high further pressured metals prices already on the defensive.

Still, the relatively low price continued to attract physical buying of gold from India and the gold price stabilised on Tuesday. Dealers in India charged premiums of up to US$1 an ounce over official domestic prices - inclusive of the 10.75 per cent import and 3 per cent sales levies, compared to previous week's US$4 discounts.

The key event this week was US Senate approval of President Joe Biden's historic US$1.2 trillion infrastructure plan. The huge amount of fiscal spending would increase inflationary pressures which may be bullish for gold. But the plan would increase the appeal of other commodities ranging from copper, steel to cement.

Technical analysis for Comex December Gold Futures (GCZ21)

Although traders found value following the steep plunge with technical indicators showing an oversold market early this week, volume and open interest readings of the gold futures contract were not as intense as expected from the two-day collapse. If readings are correctly interpreted, the steep drop in futures had been mainly due to sell-stops and long liquidation rather than fresh selling.

The size and intensity of the move seem to have upset the equilibrium in the market which had become comfortable with prices at the US$1,800 handle, and it may take some time to assimilate the new normal.

At the time of writing on Friday morning during early Asian trading, the Comex benchmark contract for December delivery had been inching higher towards immediate resistance at US$1,760. The price level was also the intraday high of the previous day's trade. But it is likely the market may move sideways and any sincere move through the US$1,760 resistance ought to be with high volumes.

On the top side, besides the immediate resistance at US$1,760, the next resistance price level for the contract lies at US$1,795 and then US$1,839 an ounce.

• The writer is senior manager, commodities, Phillip Futures