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The bullion appreciated last week triggered by a sharp fall in the US dollar and the Treasury yields. The decline in dollar was due to the latest US inflation number which softened in October. While it can be too early to say that the inflation has peaked, the moderation has certainly created an expectation among the market participants that the US Federal Reserve could tone down their hawkishness, leading to a rally in bullion and other risky assets.
In the international market, gold and silver appreciated 5.4 and 4.2 per cent to close the week at $1,771.4 and $21.71 an ounce, respectively. Similarly, the futures contract of gold and silver on the Multi Commodity Exchange (MCX) were up 2.9 and 1.7 per cent to end the week at ₹52,334 (per 10 gram) and ₹61,571 (per kg), respectively. The gains in the domestic market were lower as the Indian currency strengthened sharply against the US dollar.
MCX-Gold (₹52,334)
The December gold futures on the MCX moved along expected lines to hit the target of ₹52,000 on our long positions. In fact, the contract closed the week above this level, retaining the positive outlook. Supporting this, there was fresh long build-up last week as the cumulative Open Interest (OI) of gold futures on the MCX increased to 15,755 contracts on Friday compared to 13,928 a week ago.
Going ahead, we expect gold futures to move past the minor hurdle at ₹52,850 and rally to ₹54,000. After hitting ₹54,000, there could be a price correction, possibly to ₹52,000. But it ₹54,000 is breached, we can expect the contract to see a quick rise to ₹55,500.
Trade strategy: Traders can go long at the current level of ₹52,334. Add more longs if there is a price dip to ₹51,600. Place stop-loss at ₹50,000. When the contract rallies past ₹53,000, tighten the stop-loss to ₹52,300. When price touches ₹53,500, alter the stop-loss to ₹52,800. Book profits at ₹54,000.
MCX-Silver (₹61,571)
The December futures, rallied in the first half of last week and hit our target of ₹62,000 on Tuesday. However, it faced the 200-day moving average resistance at around ₹62,350. There is also a resistance at ₹63,000. Thus, the contract could not rally beyond the price band of ₹62,350-63,000 and ended the week at ₹61,571.
Nevertheless, the outlook remains positive and there has been a long build-up over the past week. That is, along with the rally in price, the cumulative OI went up to 19,966 from 19,299. But note that there is a chance for the silver contract on the MCX to witness a dip to ₹59,500. Eventually, the contract is expected to break out of ₹63,000 and rally to ₹66,000. A breach of this can lift it to ₹70,000 — a key psychological level.
Trade strategy: Stay on the fence for now. There are two alternatives. One, go long with stop-loss at ₹61,500, if the silver futures decisively break out of ₹63,000. Liquidate the longs at ₹66,000.
Two, if there is a price dip, buy when price touches ₹59,500 and place stop-loss at ₹57,000. When the contract surpasses ₹63,000, tighten the stop-loss to ₹61,500. Book profits at ₹66,000.
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