Gold and silver took advantage of the moderation in the dollar early last week and began the week on a strong note. Even though the greenback recovered in the second half of the week, the bullion held on to the gains. Moreover, the surge in crude oil prices helped the gold and silver prices to rally as higher energy prices could add to the inflationary pressures.
On the back of the above, spot gold and silver in the international market appreciated 2.1 and 5.8 per cent to end the week at $1,694.5 and $20.1 an ounce, respectively. Those were the biggest weekly gains for both the precious metals since the final week of July.
Likewise, the gold and silver futures on the Multi Commodity Exchange (MCX) were up 3.5 and 6.9 per cent to wrap up the week at ₹51,960 (per 10 gram) and ₹60,785 (per kg), respectively. Gold futures’ weekly gain was the biggest gain since the last week of February and silver futures’ the biggest since December 2020.
However, the concerns about the fundamentals have not faded. According to the latest WGC (World Gold Council) data, the global gold ETFs (Exchange Traded Funds) saw net outflows for the fifth consecutive month. The outflow stood at 95 tonnes in September. This is the biggest monthly outflow since March 2021. By the end of September, global gold ETF holdings were at 3,548 tonnes, a 1 per cent drop year-to-date in terms of tonnes.
But interestingly, gold ETFs in India saw net inflow, although marginal, of 0.4 tonnes, according to WGC. The council also reports that the Reserve Bank of India added 1.4 tonnes of gold into its reserves in the first three months of September, lifting the total gold reserves to nearly 783 tonnes.
The December futures of gold on the MCX marked a seven-week high of ₹52,120 last week before closing at ₹51,960. The gain has been sharp, and the price has gone above the key averages like the 20-, 50- and 200-day moving averages. Moreover, the rally was accompanied by an increase in the cumulative Open Interest (OI) on the MCX. That is, it went up to 19,423 contracts on Friday, compared to 17,891 contracts a week ago.
The above factors point to a bull trend. However, last week’s gain has not turned the trend bullish. There is a strong resistance at ₹52,800 followed by another one at ₹54,000. Probably a breach of ₹54,000 can be taken as a confirmation of bullish reversal. Until then, the sellers are expected to come in at the intermittent rallies to capitalise on higher prices to initiate fresh shorts.
So, there is a chance for the contract to rally to ₹52,800 and to ₹54,000 from here. As it stands, the broader trend remains negative, and it might reverse the trend anytime. Important support from the current level can be seen at ₹51,000 below which is the support band of ₹50,000-50,300.
Silver futures hit a four-month high last week when the December contract marked a high of ₹62,370. Thus, the contract has moved above an important ₹60,000-level and also both 20-day 50-day moving averages. The price action suggests that silver futures are likely to outperform gold futures in the coming week.
Nevertheless, the contract stays below the 200-day moving average, which is at ₹63,175 now, and the cumulative OI has been on a decline for over a month. That is, the recent rally has seen liquidation in OI hinting that short covering is continuing. It dropped to 14,344 contracts on Friday compared to 28,014 contracts on September 2. But a move above the 200-day moving average can bring in more buyers and from then on fresh long build-ups can be expected. Until then, it is a wait-and-watch game.
Key resistance levels are at ₹65,000 and ₹70,000. On the other hand, vital supports below ₹60,000 are at ₹58,000 and ₹55,000.