Derivatives

Bullion Cues: Gold cracks the hurdle?

Akhil Nallamuthu |BL Research Bureau | Updated on: Jun 11, 2022

But silver yet to breakout

Precious metals were moving in a sluggish manner last week. But post the release of US inflation data, which hit a 40-year high of 8.6 per cent in May, both gold and silver drew investors’ attention and saw a swift rally. The gain was despite the dollar strengthening, which was the main drag.

In the global spot market, gold, at $1,871 an ounce, appreciated to end with a gain of 1.1 per cent whereas silver recovered from mid-week loss to end almost flat at $21.87 per ounce.

On the Multi Commodity Exchange (MCX), gold futures (August expiry) was up by 1.4 per cent as it closed at ₹51,701 (per 10 grams). Silver futures (July series) gained 0.4 per cent and closed at ₹61,929 (per kg).

MCX-Gold (₹51,701)

For most part of the week, the August gold futures on the MCX was largely flat. But it turned highly volatile on Friday, especially in the second half. It initially made a low of ₹50,420 but recovered sharply to hit a five-week high of ₹51,797 before ending the session at ₹51,701. Therefore, the contract breached the resistance band of ₹51,400-51,600 thus giving itself a bullish bias.

Although one can be positive about gold futures this week, it should be noted that gold has not broken out in dollar terms. Meaning, last week’s gain in the domestic market was boosted by weakness in rupee. So, the breakout should be taken with a pinch of salt.

That said, if the contract sustains above ₹51,400-51,600 it can rally to ₹53,000 in a couple of weeks. A breakout of this level can lift the price to ₹54,000.

On the other hand, if prices retract below ₹51,600, the contract can be expected to stay in the range of ₹50,400-51,600 for some time. Whatsoever, the gold futures has dropped the bearish bias it has been carrying in the past few weeks and looks to have bottomed out.

MCX-Silver (₹61,929)

The July futures of silver on the MCX, which was inching down over the past week, gained sharply on Friday like gold futures. After marking an intraweek low of ₹60,250 on Friday, it rallied and closed the week at ₹61,929. But unlike gold futures, silver futures have not broken out. The price action shows that it is stuck in the range of ₹60,500 and ₹63,000.

Yet, the contract is still hovering near the bottom of the ₹58,000-74,000 range. So, a rally from here and a breakout of ₹63,000 is very much likely. Silver can also pick the positive sentiment from the yellow metal. So, even though the contract should move out of the above-mentioned range to establish a trend, we expect the silver futures to eventually rally above ₹63,000.

Above ₹63,000 it can rise towards the barrier at ₹65,000. Subsequent resistance is at ₹66,800. Over the medium-term, the silver futures could retest the range top of ₹74,000.

However, if the price drops below ₹60,500, which is an unlikely scenario given the prevailing conditions, it can touch ₹58,000 quickly. A breakdown below ₹58,000 can turn the medium-term trend bearish.

Published on June 11, 2022
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