Bullion Cues: Do gold, silver lack direction?

Akhil Nallamuthu |BL Research Bureau | Updated on: Jun 25, 2022

Silver appears weaker than gold

Investors expressed risk-on sentiment last week as equities across the globe gained and safe havens such as bullion saw a price drop. Even the dollar moderated.

Gold and silver in the international spot market declined by 0.7 and 2.5 per cent as they closed the week at $1,826 and $21.1 per ounce, respectively.

Similarly, gold futures (August expiry) on the Multi Commodity Exchange (MCX) depreciated by 0.4 per cent and silver futures (July series) dropped by 1.9 per cent as they ended the week at ₹50,623 (per 10 grams) and ₹59,749 (per kg), respectively.

Broadly, the relief rally in equities might extend, and this could add a little more downward pressure on bullion prices next week. That said, the long-term trend is bullish.

MCX-Gold (₹50,623)

The August futures of gold on the MCX, although lost 0.4 per cent, largely remains sideways. The limits of the range are at ₹50,000 and ₹51,800. A breach of either of these levels can give some clue about the direction of the next leg of trend.

As it lacks direction, there was a marginal drop in the cumulative open interest (OI) of gold futures on the MCX. It dropped to 15,883 contracts on Friday compared to 15,934 contracts a week back.

In the coming week too, the gold futures can be expected to tread within the range of ₹50,000-51,800.

If it breaks out of ₹51,800, it can quickly touch to ₹53,000. It might even extend the upside to ₹54,000, a considerable resistance. On the other hand, if gold futures breach the support at ₹50,000, we might witness a fall to ₹48,000. Below this level, the support is at ₹46,400.

MCX-Silver (₹59,749)

Silver futures appeared bearish in comparison to gold futures, as it lost 1.9 per cent to end the week at ₹59,749 compared to last week’s close of ₹60,937. There are a couple of factors that point to bearishness. One, the contract is now below the support of ₹60,000. Two, as the contract price declined last week, there were some build-ups in the cumulative OI of silver futures. The OI increased to 16,357 contracts as against 14,560 contracts by the end of the preceding week. Therefore, the bears seem to be gaining control over the bulls.

However, it should be noted that there is a significant support at ₹58,000 and so long as this support holds true, we cannot assume a downswing.

If there is a bounce off ₹58,000, it can rally back to another key level at ₹62,500. Above this resistance, there is a hurdle at ₹66,800. But if the contract invalidates the support at ₹58,000, it can turn the medium-term trend bearish. Nearest support below ₹58,000 is at ₹55,000.

Published on June 25, 2022
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