Bullion ended the week on a high as the dollar weakness triggered a rally on Friday. Gold and silver appreciated 2.3 and 8.4 per cent to end the week at $1,680.3 and $20.84 an ounce in the international market.
Similarly, in the domestic market, gold and silver futures (nearest expiry) on the Multi Commodity Exchange (MCX) gained 1.3 and 5.3 per cent, as they closed the week at ₹50,866 (per 10 gram) and ₹60,538 (per kg), respectively. The upside was limited in the local market as the rupee strengthened against the dollar over the past week.
On the fundamental front, the demand trends released by the World Gold Council (WGC) show that the total demand for the yellow metal in the third quarter of 2022 was almost flat at 1,215 tonnes compared to 1,208 tonnes in the same period last year. While the demand from jewellery and the central bank improved, there were considerable outflows from the global gold ETFs (Exchange Traded Funds) due to the lack of investor confidence.
That said, the charts of both gold and silver show some positivity by forming a base which is likely to keep the short-term trend bullish. However, the medium-term trend remains weak.
The December gold futures on the MCX has strengthened its base at ₹50,000 by bouncing off this level towards the end of last week. Currently trading at ₹50,866, the contract is likely to face a minor resistance at ₹51,000. However, we expect the gold futures to break out of this level and touch ₹52,000 in a couple of weeks. This is a strong resistance from where we could see a correction. But if there is a breakout, the subsequent resistance can be spotted at ₹52,800.
Given the prevailing conditions, the contract is less likely to fall below ₹50,000 immediately. So, traders can prefer to stay long on gold futures.
Trade strategy: We suggested going long on gold futures a couple of weeks ago. Buy price was at ₹50,300 with stop-loss at ₹49,700. Hold the longs for the target of ₹52,000.
Fresh longs are not recommended now as the risk-reward ratio is not favourable. One can consider longs if there is a dip to ₹50,300 from here.
Silver fared better than gold for the third week in a row as the December futures posted a gain of 5.3 per cent versus gold futures’ gain of 1.3 per cent. Silver futures has managed to close above the ₹60,000-mark and this means the price will soon rise to the resistance band of ₹62,000-62,800. The 200-day moving average lies at ₹62,420. A breach of ₹62,800 can quickly lift the contract to the next resistance at ₹65,000.
On the downside, ₹58,500 and ₹57,000 can offer good support.
Trade strategy: We suggested buying silver futures at ₹56,800 with stop-loss at ₹54,200. Since the contract has crossed over ₹60,000, the revised stop-loss would now be at ₹58,800. Hold the longs, but exit when the price touches ₹62,000.
After liquidating, one can consider going long again after the decisive breakout of ₹62,800. In such a case, stop-loss can be placed at ₹59,900 and one can aim for the target of ₹65,000.