The precious metals appreciated last week as the dollar softened. Gold and silver in the international spot market were up 1 per cent and 0.7 per cent to end the week at $1,659.7 and $19 per ounce respectively. In the domestic market too, they posted gains. On the Multi Commodity Exchange (MCX), the December gold futures appreciated 1.3 per cent to close the week at ₹50,194 (per 10 gram). Similarly, the December silver futures went up 1.1 per cent as it closed at ₹56,858 (per kg).

Weak fundamentals

The latest data by the World Gold Council (WGC) shows that the net central bank purchase in August stood at 20 tonnes. Although this is the fifth consecutive month of net purchases, the buying has been slowing. Moreover, the central bank demand of gold is much lower compared to demand from global gold ETFs (Exchange Traded Funds), which continues to see withdrawal as prices decline. For the week ended September 23, the net outflows from the global ETFs stood at nearly 28 tonnes. The weekly flows have been negative since the last week of June.

The speculators too seem to be having a weak outlook on the yellow metal. The net longs on the COMEX which stood at 462 tonnes on August 8 dropped to 143 tonnes on September 27. The charts too are indicating a weak outlook. Below is our analysis based on the charts.

MCX-Gold (₹50,194)

The December futures of gold on the MCX gained 1.3 per cent last week. However, the trend has been down since mid-August. The rollover looks very strong at nearly 99 per cent indicating that the participants have rolled over their short positions from October to December expiry indicating the broader expectation is bearish.

On the charts, even though the contract managed to close above ₹50,000-mark, it stays just below the trendline resistance at ₹50,200. Moreover, the RSI and the MACD on the weekly chart shows that a decline from here is very much likely.

So, even if the rally extends from the current level, it is expected to be capped at ₹51,000. We expect gold futures to resume the descent from the current level or after moving up to ₹51,000. The nearest supports are at ₹47,500 and ₹46,500. We forecast the contract to touch ₹46,500 before the end of this year.

Lacklustre Gold
Latest World Gold Council data shows that the net central bank purchase in August stood at 20 tonnes, lower than global gold ETFs
MCX-Silver (₹56,858)

Like gold futures, silver futures too went up last week. But the contract remains below the key resistance band of ₹58,000-60,000 and as long as it remains so, the trend will be considered bearish. The 20-week moving average coincides with this price band, making it a significant hurdle.

Therefore, even though some shorts were covered last week, as indicated by the cumulative open interest data, the overall trend remains weak and the probability of a fall from here is high.

The price action on the weekly chart suggests the downtrend will resume with the nearest notable support at ₹52,000. If the downtrend extends below this level, subsequent support can be seen in ₹47,500-48,500 region. This is a strong support against which the contract can witness a bounce which could even become a bullish reversal paving the way for establishment of the next leg of the long-term uptrend.

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