Bullion prices, which were largely flat for most part of the week, depreciated sharply towards the end of the week. The recovery in dollar following better-than-expected US growth data weighed on the precious metals.
The spot gold and silver in the international market lost 0.7 per cent each to end at $1,644.5 and $19.26 per ounce, respectively.
In the domestic market — on the Multi Commodity Exchange (MCX), gold futures fell 0.8 per cent to close the week at ₹50,230 (per 10 gram) and siler futures lost 0.2 per cent and to endi at ₹57,480 (per kg).
Although the prices were down last week, gold and silver futures on the MCX are trading above important support levels. But note that the US Fed will be announcing its policy rates this week which can increase the volatility.
Through the week, the December futures of gold was trying to move past the 20-day moving average resistance. However, on Friday, the contract witnessed a sharp fall to end the week lower at ₹50,230 compared to the preceding week’s close of ₹50,626.
Yet, the contract remains above a support at ₹50,000. We do not expect the contract to slip below this level. Technically, there is a chance for the contract to touch ₹52,000 — a strong hurdle — in the near term. But in case ₹50,000 is breached, there is a good support at ₹49,200 which can prevent further downside.
Trade strategy: Last week, we had suggested to go long on gold futures when price dips to ₹50,300 with stop-loss at ₹49,700. The contract dipped as we expected, which could have triggered longs. Continue to hold this position and exit on a rally to ₹52,000.
But note that, as we mentioned above, we might see higher volatility this week because of the US Fed meeting. In the wake of the same, stick to stop-loss and target levels strictly and keep your positions light.
Silver futures outperformed gold futures on the MCX for the second consecutive week. The December contract closed at ₹57,480 versus the previous week’s close of ₹57,613.
The contract fell after facing a minor resistance at ₹58,500. However, the bias remains bullish, and it will remain so until the support at ₹55,000 holds. So, silver futures can be expected to rally from the current level or after a dip to ₹56,700 where the 50-day moving average lies.
On the upside, the contract has the potential to rally to ₹62,000 — a resistance — in the short run. Immediately above this is the 200-day moving average at ₹62,630 which can act as a hurdle. So, the contract should break out of ₹62,630 to turn the medium-term trend bullish. On the other hand, if the support at ₹55,000 is taken out, the price can quickly drop towards the price band of ₹52,000-52,500. But until ₹55,000 stays valid, we suggest preferring longs.
Trade strategy: Go long on December silver futures when price dips to ₹56,800 for better risk-reward ratio. Keep initial stop-loss at ₹54,200. When the contract touches ₹60,000, tighten the stop-loss to ₹58,800. Exit when the price rises to ₹61,800.
The Fed’s policy rate decision can impact silver prices also which traders should be wary of.