Commodity Analysis

Bullion Cues: Gold tumbles as dollar strengthens

Gurumurthy K | Updated on March 10, 2018 Published on December 10, 2017

Further fall is likely as the dollar may remain strong

It was a bad week for gold. After being range-bound between $1,270 and ₹1,300 an ounce for three weeks, gold broke and fell sharply below $1,270 last week. The fall and a subsequent break below $1,260 triggered strong selling in the metal and dragged it to a low of $1,244 before closing the week 2.5 per cent lower at $1,248 per ounce.

Silver, on the other hand, broke below the key support level of $16.6 an ounce and tumbled to close at $15.86, down 3.5 per cent for the week.

On the domestic front, the gold futures contract on the Multi Commodity Exchange (MCX) fell below the key ₹29,000-₹28,800 per 10 gm support zone last week. The contract was down 2.3 per cent for the week and closed at ₹28,533 per 10 gm.

Surprisingly, the sell-off in the MCX-Silver futures contract was subdued last week as the contract was beaten down badly in the previous week. The silver contract closed at ₹37,055 per kg, dipping 1.4 per cent for the week.

Dollar strengthens

The sell-off in gold last week was triggered by the strong US dollar, that was buoyed by the US tax reforms.

The dollar index rose, breaking above the key resistance level of 93.5 and ended the week at 93.9, up 1.1 per cent for the week. The outlook is bullish for the index. Immediate supports are at 93.7, 93.55 and 93.5, which are likely to limit the downside in the index. Resistance is at 94.15. Inability to break above it can trigger an interim dip to 93.7 or 93.5. An eventual break above 94.15 can boost the momentum. Such a break will pave the way for further targets of 95 and 95.25.

Gold outlook

The short-term outlook for global spot gold ($1,248 per ounce) is bearish. A cluster of resistances are poised between $1,260 and $1,270, which is likely to cap the upside. Only a strong break above $1,270 will turn the outlook positive. But such a strong move looks unlikely at the moment. As such gold is likely to fall to $1,235 or $1,233 in the coming days. Further break below $1,233 can drag lower to $1,225.

MCX-Gold (₹28,533 per 10 gm) has resistance at ₹28,800. It can fall to test the key support in the ₹28,200-₹28,000 region. Cluster of supports are poised in between ₹28,200 and ₹28,000. An upward reversal from this support region can take the contract higher to ₹28,800 and ₹29,000 once again.

Silver outlook

The global spot silver ($15.86 per ounce) can dip to test the next support level of $15.30. If it manages to bounce from this support, a relief rally to $16 or even higher levels is possible. But a strong break below $15.30 will increase the possibility of silver tumbling to $15 or even lower levels thereafter.

MCX-Silver (₹37,055 per kg) has key resistances at ₹38,000 and ₹38,500. As long as the contract trades below ₹38,000 there is a strong likelihood of it tumbling to ₹36,000 or even ₹35,500 in the coming days.

Published on December 10, 2017

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