Gold Breaks Above Rs 27k, Fresh Buying Continues To Support

MCX Gold futures broke above Rs 27000 per 10 grams level today as the global prices raced higher for a second session. Gold has cut back its losses after the FOMC statement and a much-awaited cut in interest rates from the ECB yesterday made gold bulls come back from the hiding with a vengeance. The metal added around 20 dollars on the day yesterday. The sentiments in today's trade are likely to be choppy with the all important US non farm payrolls due in the evening and Gold could witness some selling pressure on the higher levels. The metal currently quotes at $1474.50, up $6.90 per ounce on the day.

The European Central Bank decided to lower its benchmark interest rate by 25 basis points to 0.50% yesterday, very much as expected. However, since this was already factored in, Gold was sitting unmoved after the announcement. The Fed stated yesterday that information received since the Federal Open Market Committee met in March suggests that economic activity has been expanding at a moderate pace. Labor market conditions have shown some improvement in recent months, on balance, but the unemployment rate remains elevated.

Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth. Inflation has been running somewhat below the Committee's longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable.

In fact, the Fed expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. This took aside the calls for an early end to the quantitative easing regime.

On Wednesday, China's official purchasing managers' index (PMI), which mainly focuses on the state-owned enterprise sector, fell to 50.6 in April from 50.9 in March, indicating a slowdown in manufacturing activity that was led by a slump in new export orders. A reading above 50 indicates expansion in the manufacturing sector while a reading below 50 means that manufacturing activity shrank.

Gold had tumbled in a freakish manner a few days back. There were concerns that debt stricken European country Cyprus might have to sell gold holdings to raise finances. Traders fear that this would load up supplies in global markets in the short term. Massive unloading in Gold ETF's was also responsible for the worst crash in gold prices for three decades.

Gold corrected more than 40 dollars in the current week before the current upswing.

However, the US dollar has recorded good gains after plummeting to its two month low against the Euro and could see some further positive bias ahead of non-farm. The MCX Gold futures have recaptured Rs 27000 per 10 grams mark and are currently trading at Rs 27045, up Rs 131 per 10 grmas or nearly half a percent on the day. Fresh buying remains evident as open interest gains around 3% so far in the day.