Upside may be capped at $1,378

Gold headed for a third straight weekly loss on speculation that borrowing costs would rise as the economy recovers, eroding the yellow metal’s appeal as an alternative investment. Gold futures for February delivery posted a weekly loss of $19.50, or 1.43 per cent, to $1,341 an ounce on the Comex in New York. The metal is down almost six per cent in three weeks. It is heading for its first monthly drop since July, after touching a record $1,432.50 an ounce on December 7.

The decline in prices saw the holdings in gold-backed exchange-traded products drop 2.16 metric tonnes to 2,065.41 on Friday, the lowest since August 18, according to data compiled by Bloomberg. However, with gold falling to a low of $1,324 on Friday, value buying was seen in the SPDR Gold Trust, which saw holdings rise 12.44 metric tonnes to 1,271.77 metric tonnes as of January 21.

Gold is likely to move further down to around $1,314 and the fresh upside is likely to be capped at $1,378. The Bloomberg’s market picture chart suggests a price level of $1,300-1,320, based on significant put writing in put options. The $1,340 strike call options saw a significant short build-up as participants see gold moving above $1,354 unlikely. The 21-day moving average indicates an upside of $1,380 and support at $1,333.

The weekly trading volume in February futures is hinting at a volume-based downside around $1.314. The TPO-based resistance is expected to come around $1,400, the MKTP chart suggests. The February futures, settled well below the lower band of the weekly value area (1,346-1,372), indicate strong resistance for gold above 1,346. The weak undercurrent, also seen in MKTP chart as the value area in the last three days, was below the previous day’s level.

Hedge-fund managers and other large speculators decreased their net-long position in New York gold futures for the week-ended January 18, according to US Commodity Futures Trading Commission data. Net-long positions fell by 12,379 contracts, or seven per cent, from a week earlier. Miners, producers, jewelers and other commercial users were net-short of 206,471 contracts, down 18,593 contracts, or eight per cent, from the previous week.