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Gold prices reversed lower on Thursday, after having been surging for three days in a row. The precious metal had been in a good mood with strong festival demand from India, but its strength could not knock down a rising U.S dollar. A firmer greenback is typically bearish for gold, as it leaves the dollar-priced asset less desirable to buyers holding other currencies.
The yellow metal had risen to as high as $1274.58 per ounce – the highest since October 5th amid mounting physical gold demand from India – the world’s second largest gold consumer. According to market sources, Indian imports are likely to hit a nine-month high in October as its domestic market started trading in a premium.
India’s overseas purchases of gold likely reach 60-70 tons, the highest since January and more than double an estimated 30 tons in September. Last month, gold traded in a discount (Indian dealers offered gold below the official domestic price) owing to weak demand and smuggling issue which results from the continuation of the 10% customs duty on import of gold bars.
However, a flip in domestic prices to a premium ahead of a seasonal pickup in consumption prompted banks and refiners to resume imports. Demand for the precious metal in India usually gears up in the fourth quarter as this is the time of wedding season and festivals such as Diwali and Dussehra.
Gold prices would remain on their track of rising if it was not because the U.S dollar became stronger. The buck gained versus euro following comments by the European Central Bank President Mario Draghi that the ECB had neither discussed about an extension of its bond-buying program beyond March 2017, nor tended to stop its QE program without tapering its first.
The dollar index, which measures the strength of the U.S dollar versus a basket of major peers, rose 0.45% to 98.28.
Fig: GOLD D1 technical Chart
Gold trimmed its three-day-long rally to head back to 38.2% Fibonacci retracement at 1249.73. The gold market has escaped from the oversold zone but still remains in the bearish territory. Gold may fall deeper as downward pressure are still being exerted by two moving averages hanging above the price chart.
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