Precious metals fell last week on the back of a strong dollar. The international spot gold and spot silver depreciated 3.2 and 5.1 per cent to close the week at $1,865.5 and $22.35 per ounce, respectively. Similarly, on the Multi Commodity Exchange (MCX), gold futures (April contract) and silver futures (March expiry) declined about 1.2 per cent each to end the week at ₹56,585 (per 10 gram) and ₹67,576 (per kg), respectively.
The fall in the domestic market was less pronounced as the Indian currency was down 0.4 per cent last week against the dollar.
The April gold futures, which rallied above ₹57,600 and registered a high of ₹58,847 last week, saw a sharp fall to close at ₹56,585. Along with this, the cumulative Open Interest (OI) of gold futures on the MCX dropped to 20,674 on Friday compared with 21,093 by the end of preceding week. This shows long unwinding.
The chart hints at more correction, possibly to ₹55,400 – a support. Subsequent support is at ₹54,000.
Trade strategy: As the likelihood of a fall looks high, traders can go short at the current level of ₹56,585 and add more shorts if price rises to ₹57,600. Place stop-loss at ₹58,200 at first. Move it down to ₹56,800 when the price slips below ₹56,125. Book profits at ₹55,400 since we could see a bounce off this level.
The March silver futures broke out of ₹70,000 last Thursday and marked a high of ₹72,769. However, the rally could not sustain and the contract made a quick U-turn to fall below the ₹70,000-mark. Although it closed within the price band of ₹67,000-70,000, silver in terms of dollar has slipped below a support. This can have an impact on MCX silver futures too.
In the coming days, the contract is expected to decline to ₹64,000 – the nearest support. A breach of this can result in a fall to ₹62,200.
Trade strategy: Sell silver futures at the current level of ₹67,576. Short more if price moves up to ₹69,000. Place stop-loss at ₹70,500 at first. Tighten it to ₹67,500 when price goes below ₹66,000. Further, alter the stop-loss to ₹66,000 when price touches ₹65,000. Exit the shorts at ₹64,200.