GOLD vs US Dollar

MAJOR HIGHLIGHTS

Spot Gold prices ended in the green on Tuesday despite strength in the dollar.

International demand for US assets rises on the back of record bond purchases.

MARKET RECAP

Spot Gold prices gained on Tuesday despite a stronger dollar as demand for the yellow metal as a safe-haven increased as markets became wary ahead a host of economic data releases in the later part of the week from the US and China. Gold prices could trade higher in this week as expectations of further weakness in the dollar could support an upside. Officials of the Federal Reserve Bank said yesterday that lending rates in the US may remain low for as long as two years.

The Federal Reserve has kept its target rate at zero percent to 0.25% since December 2008 to revive the economy. Lower interest rates in the US reiterate that the world’s largest economy is still struggling with the worst financial crisis. This concern over economic growth could trigger traditional safe-haven demand for gold. Economic data from the US has come on the negative side and indicates that the world’s largest economy is still fragile.

On the Currency front, the Euro weakened sharply against the dollar on Tuesday after German ZEW index came in much weaker than expected at 47.2 in January versus expectation of 49.5. The Indian Rupee depreciated on Tuesday as strength in the dollar put pressure on the currency. Strength in the dollar coupled with a decline in equities led to depreciation in the currency.

OUTLOOK

On expectations of lower interest rate in the US, the dollar is expected to weaken further. Weakness in the dollar will help gold prices as a weaker dollar will make the yellow metal look attractive for holders of other currencies. In 2009, the rise in gold prices was mainly backed by the weakness in the dollar. Gold prices could continue to witness an uptrend in prices and the bullish phase in the yellow metal could continue.

On intraday basis, Spot Gold prices have immediate support at $1130/$1123 whereas resistance is seen at $1143/$1150. Spot Silver prices shall find support at $18.45/$18.20 whereas resistance is seen at $18.90/$19.10.