GOLD

FUNDAMENTALS

Gold futures declined sharply on Tuesday as firmness in dollar and weakness in crude oil hampered the investment demand for the precious metal. Gold futures for June delivery on COMEX shed $18.70 to close the session at $876.80 an ounce. The recent decline in the gold prices however is likely to rekindle physical demand for the metal.

Recovery in dollar on expectations that Federal Reserve will end its easing cycle pressured gold prices on Tuesday. The dollar index gained 0.3% to 72.83.  Most economists expect 25 basis points cut in Fedral Funds rate to 2.0%, the lowest level since December 2004. If the Fed keeps the interest rates unchanged, the US currency might strengthen further against the major counterparts. More than 25 basis points cut in not likely, especially looking at the rising inflation on soaring crude oil prices and increasing food prices. The market will be keeping a close eye on the FOMC meeting ending Wednesday. 

Meanwhile, declining mine supplies suggests that the fundamentals of gold continue to remain strong. Gold production by Lihir Gold Ltd. during Q1 fell 28% from a year earlier as rain and equipment unavailability hampered mining. The company produced 138,525 ounces of gold in Q1, down from 193,302 a year ago.

Zimbabwe's gold production plunged by 61% to 295.57 kg in March compared with February due to non-payment of wages. Miners get 35% of their wages in the local currency and 65% in U.S. dollars. But the payments in dollars are not being made and the local currency is hugely overvalued. Gold production declined 47% in January and by 56% in February.

TECHNICALS

The prices have closed below the 9-day as well as 18-day EMA, which indicates weakness in the market. MACD is heading downwards in negative region. Oversold levels of stochastic however warrant caution to bulls. Gold futures are likely to see volatile movements.

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