Indication for further rate cut by ECB will prove supportive for gold, say analysts
Gold is expected to move up in the coming week as European Central Bank cuts euro-zone economic projections for the 2012 and 2013.
ECB expects euro-zone economy to shrink 0.5% this year, more than the 0.4% contraction the central bank predicted in September.
The ECB cut its 2013 forecast to a contraction of 0.3% from 0.5% growth, and projects expansion of 1% in 2014.
So far, ECB has kept interest rates unchanged at 0.75%, but there are indications that there will be a further rate cut.
US on the other hand will keep low interest rates till mid 2015 as well as announce a monthly purchase of $40 billion of mortgage backed securities till the labour market improves significantly.
By the end of the year US will see series of automatic spending cuts while tax breaks will end.
"This combination of spending cuts and tax increases, which will take effect if the president and Congress fail to reach a deal on reducing the deficit before year’s end will put pressure on the economy and some even fear another recession,” Kotak Commodity Services said in a report.
Currently, US president Obama is pushing for tax increases while the Republican party is laying emphasis on spending cuts.
This will put pressure on the dollar which will in turn cause the price of dollar denominated commodities to increase.
"Gold is expected to move northward next week as major global economies still remain uncertain and indication for further rate cut by ECB will prove supportive for gold,” said Ajay Kedia, managing director of Kedia Commodities.
US Federal Reserve is expected to meet on Wednesday and some quantitative easing measures may be announced, which will give a clear indication on gold in the coming week.
"But, rupee is expected to appreciate against the dollar hence the upside for gold on the Indian market remains limited in the coming week,” said Naveen Mathur, associate director of commodities and currencies at Angel Broking, a Mumbai based broking firm.
Ajay Kedia sees support for gold traded on Multi Commodity Exchange at 31,880 per 10 grams and resistance at Rs 32,560 per 10 grams.
Last week, gold on Mumbai spot market also moved down by 1.49% and closed at Rs 31,326 per 10 grams.
Silver on the other hand is expected to take cues from the performance of base metals but sentiments remain mixed as there is no clear trend, according to bullion analysts.
Base metals are expected to trade positive and may provide some positive sentiment to the metal.
Silver in the last week on Mumbai spot market moved down by 1.9% to end the week at Rs 62,350 per kilogram.
Gold prices rose marginally by 0.15% to Rs 31,226 per 10 grams in futures trade today as speculators created fresh positions.