Silver outperformed gold last week as the risk appetite was seen a bit higher where the safe assets’ performance lagged the risky assets broadly.
Gold was largely flat. In the international market, the yellow metal closed with a minor gain of 0.2 per cent to end the week at $1,754.7 per ounce. Whereas on the Multi Commodity Exchange (MCX), gold futures (December contract) was down 0.1 per cent as it closed at ₹52,544 (per 10 gram). Thus, on a weekly basis there was not much change in price.
On the other hand, silver, in dollar terms, appreciated 2.4 per cent to wrap up the week at $21.45 an ounce. The silver futures (December expiry) on the MCX went up 1.3 per cent to close the week at ₹61,676 (per kg).
Nevertheless, both the precious metals continue to remain above key supports and keep the chances of a rally from here high.
Although there was a mid-week recovery in the December gold futures on the MCX, on a weekly basis, the contract ended largely flat. While it made an intra-week low of ₹52,068 on Wednesday, it recovered in the subsequent session to close the week at ₹52,544 versus the preceding week’s close of ₹52,588.
The lack of activity can also be seen through the Open Interest (OI) — the outstanding cumulative OI of gold futures on the MCX did not change much as it stood at 17,039 contracts on Friday versus 17,149 contracts by the end of the previous week.
Yet, the contract retains the bullish inclination and is expected to recover from here. On the upside, it has the potential to rally to ₹54,000 in the short term. On the downside, the contract has support at ₹52,000 and ₹51,600.
Trade strategy: Last week, we recommended fresh longs if price drops to ₹52,100 and to ₹51,600 with initial stop-loss at ₹50,000. While the price touched ₹52,100, it did not drop to ₹51,600. Therefore, traders would be holding buys taken at ₹52,100 with stop-loss at ₹50,000.
Retain this trade and add longs if price declines to ₹51,600. When the contract rallies past ₹53,200, tighten the stop-loss to ₹52,300. Further, on a rally to ₹53,500, alter the stop-loss to ₹52,800. Book profits at ₹54,000.
The silver futures produced a gain last week. There was some addition in the OI on the MCX indicating mild long build-up. That is, on Friday, the cumulative OI stood at 19,479 contracts compared to 19,298 contracts by the end of the preceding week.
However, it stays below the 200-day moving average, which is now at ₹62,100, and another resistance at ₹63,000. That said, the price action of the contract shows bullish bias. Nevertheless, one should wait for confirmation on either side before entering fresh trade.
Resistance above ₹63,000 can be seen at ₹66,000 and ₹70,000. The nearest support from the current level can be the price band of ₹58,500-59,500.
Trade strategy: Stay on the sidelines for now as risk-reward is not favourable. There are two alternative trade plans. One, go long with stop-loss at ₹61,500, if the silver futures invalidate the resistance at ₹63,000. Liquidate this position at ₹66,000.
Two, if the price declines from here, buy at ₹59,500 and at ₹58,500. Place stop-loss at ₹57,000 initially. When the contract surpasses ₹63,000, tighten the stop-loss to ₹61,500. Book profits at ₹66,000.