Gold is expected to move up in the coming week as the European Central Bank (ECB) cut the Euro zone economic projections for 2012 and 2013, indicating a further interest rate cut.

ECB expects the euro area economy to shrink 0.5 per cent this year, more than the 0.4 per cent contraction the bank had predicted in September. ECB cut its 2013 forecast to a contraction of 0.3 per cent from 0.5 per cent growth, and projects expansion of one per cent in 2014.

There are indications that ECB will cut interest rate from the current 0.75 per cent.

The US Federal Reserve, on the other hand, will keep low interest rates till mid 2015 and has announced a monthly purchase of $40 billion of mortgage-backed securities till the labour market improves significantly.

By the end of the year, the US will see a 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 an indication for further rate cut by ECB will prove supportive for gold,” said Ajay Kedia, managing director of Kedia Commodities.

The US Fed is expected to meet on Wednesday and some quantitative easing measures may be announced, which will give a a clear indication to gold in the coming week.

“But, the 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 per cent and closed at Rs 31,326 per 10 grams.

Source: Business Standard

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