MCX Gold managed to close above Rs 16500, finding some buying support just under the key levels after a massive correction spooked the commodity in the last session. Gold slumped yesterday on dollar strength and an interest rate hike by the Reserve Bank. The Reserve Bank of India increased its key interest rate from 4.75% to 5.00% in an attempt to restrain the economy. It was the first rate increase since July of 2008. The domestic markets were spooked following this, as the era of easy money seemed to have gotten over.
Gold futures on the COMEX Division of the New York Mercantile Exchange went sharply down on Friday as continued uncertainty about Greek debt crisis helped lift the dollar higher. The most active gold contract for April delivery declined 19.9 U.S. dollars, or 1.8 percent, to finish at 1,107.6 dollars.
The Greece's debt crisis, which kept lingering around the financial markets, helped push the euro near 1.3500 on Friday. Gold moves inversely against dollar for investors generally purchase the metal, priced in dollars, to hedge against declines in the U.S. currency.
Meanwhile, yesterday, markets were quick to factor in that an interest rate hike by India is regarded bearish for the gold market since it usually damp demand for raw materials including precious metals. Due to the fact that India is one of the biggest buyers of gold, this discouraging news triggered a large sell-off in gold today.
Today's movement suggested that the direction is still very uncertain for the commodity. The international prices would be eying an all important support at $1100 from here and a break below may bring in levels around $1070 in contention. Local gold still looks fairly well placed to garner buying support around Rs 16000. The expiry of the April series on COMEX and MCX is approaching and this is normally considered to be a bearish time for the commodity, when investors roll their positions over.