Derivatives

Are there sunny times ahead for gold?

Akhil Nallamuthu BL Research Bureau | Updated on November 06, 2021

While ₹48,000 can be a hurdle for the bulls, it will most probably rally past this level

Tapering finally became a reality as the US Federal Reserve (Fed) announced a reduction in asset purchases starting with $15 billion this month and by another $15 billion in December. But the Fed left interest rates unchanged. Post this announcement, the dollar strengthened and treasury yields dropped as bullion, which approached the event warily, recovered and ended the week on a positive note.

In dollar terms, gold closed at $1,816.7 per ounce, gaining 1.9 per cent for the week whereas silver ended at $24.17 per ounce, went up by 1.3 per cent. Most of the gains were made in the last two sessions. In the domestic market, gold futures (December expiry) on the Multi Commodity Exchange (MCX) closed with a marginal gain of 0.7 per cent at ₹47,972 (per 10 grams). Silver futures (December series) depreciated by 0.3 per cent to wrap up the week at ₹64,332 (per kg).

Although the price movement of bullion suggests sluggishness, the bullish undertone has sustained. For instance, the Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) shows that net long positions on the COMEX have been increasing since the beginning of October and now stand at 701 tonnes compared to 537 tonnes by the end of September. The Fed making its first move towards normalisation could strengthen the argument of inflation being sticky, keeping the outlook positive for bullion.

MCX-Gold (₹47,972)

In line with our expectations, gold futures, which began last week on a positive note, gave away gains and dropped to test the support at ₹47,000. After marking an intraweek low of ₹46,872 , the contract recovered and closed the week at ₹47,972, up 0.7 per cent.

As long as the contract stays above the base of ₹47,000, the trend will be inclined to the upside and the price band of ₹47,000-47,120 will act as demand zone. A break below this level is less likely. Also, the contract remains above the 50-day moving average (DMA) and the relative strength index (RSI) lies in the positive territory.

Moving ahead, the contract is likely to gain traction. While ₹48,000 can be a hurdle for the bulls, it will most probably rally past this level and end up breaching the resistance band of ₹48,000 – 48,300. A breach of this level can lift the contract to ₹49,000.

Therefore, traders can hold existing longs. If not, fresh longs can be created at current level of ₹47,972 and can be accumulated at ₹47,000. Place the initial stop-loss at ₹46,500 and stick to it strictly. Because a decisive breach of ₹47,000 can negate the near-term uptrend and can pave way for a decline towards the support band of ₹45,700 – 46,000, a breach of this level can intensify the sell-off.

One can hold longs with the first target at ₹49,000. Once this is achieved, exit half the long positions and revise the stop-loss upwards to ₹48,000. Then wait for the next target at ₹50,000 where one can liquidate the remaining longs since the likelihood of a corrective decline from this level is high.

MCX-Silver (₹64,332)

The price pattern of silver futures resembled gold futures last week. As per our expectations, the price of silver futures moderated to ₹62,500 which restricted the decline below this level. The 50-DMA currently coincides at ₹62,500 and the 50 per cent Fibonacci retracement level of the prior rally lies at this level, making it a strong support. Until the contract is above this base, the bias will be bullish, and it can regain upward momentum anywhere within the important support band of ₹62,500 and ₹64,300.

Moreover, indicators like the RSI and the MACD on the daily chart are in their respective bullish region.

In upcoming sessions, the contract can rally towards the nearest barrier at ₹66,700. The price level of ₹65,500 can offer some resistance but it is likely to be breached easily. A breakout of ₹66,700 will significantly improve the probability of the futures touching the key level of ₹70,000.

Given the above factors, one can continue to hold exiting longs. One can also go long afresh at current levels and accumulate if price drops to ₹62,500. Initially, stop-loss can be placed at ₹61,000. Since ₹66,700 can be the first hurdle, traders can book partial profit at ₹66,700 and then shift the stop-loss to ₹65,000. Thereafter, look for the next target at ₹70,000.

A breach of ₹62,500 can turn the short-term outlook negative for silver futures. Key supports below ₹62,500 can be spotted at ₹61,000 and ₹59,300.

Published on November 06, 2021

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