Gold prices closed the year on a high note as the precious metal rose over 1% for the week to around $1,822, not far from six months’ high of $1,833/oz it made during the week.

Elsewhere, the 10-year treasury note rallied to one month’s high of 3.89% and is up 2.13% for the week, which has mostly capped the yellow metal’s upside.

The week remained light on the data front as the US weekly labour market report showed some crack with jobless claims up by 9,000 to 2,25,000.

The US housing market did better with pending home sales easing to 4% in November from 4.6% in October, while the increase in home prices witnessed single-digit growth of 9.2% in October easing from 10% in the previous month.

The week ended on a higher note with December Chicago PMI improving from 37.2 to 44.9, but still under contraction.

The week ahead remains data-heavy, with China scheduled to release its Caixin Mfg. The PMI index is expected to show further decline in December as the surge in the Covid cases has dampened the economic sentiments again.

The Eurozone will release Mfg PMI, Construction PMI index, CPI, and PPI for December, which is expected to show further improvement for the third straight month and should hold Euro up against the USD. All the eyes would remain on the ISM mfg, job numbers and factory orders.
We expect the labour market in the US to show weakness from onwards and the unemployment rate to exceed 4%, which should bode well for gold from a short- to medium-term perspective.

The interest rate at 4.25% in the US is expected to adversely impact business activities in the coming months. The December ISM mfg. will further show contraction.

The volumes so far had remained thin during the holiday-curtailed week. International funds would only resume after the first week of January. Thus, we expect prices to trade with higher volatility given the key economic data lined up for the week.

A poor labour market report from the US could drive gold prices toward the resistance of $1,850 followed by $1,875 and a good economic show from the US could again make gold to test the support of $1,785 during the week.

Traders should look for the opportunity to buy into the correction on large.

(The author is Research Analyst at Sharekhan by

)

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