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Precious metals continued their descent last week as the dollar strengthened. Gold dropped 1.4 per cent in dollar terms to end the week at $1,811.6 per ounce. On the domestic front, the gold futures on the Multi Commodity Exchange (MCX) lost 1.5 per cent to close at ₹55,432 (per 10 gram).
Similarly, silver in dollar terms was down 3.8 per cent and closed at $20.77 an ounce. Silver futures on the MCX depreciated 3.5 per cent to wrap up the week at ₹64,532 (per kg).
MCX-Gold (₹55,432)
The April gold futures was largely flat during the first half of last week. However, bears took charge in the latter half and dragged the contract. Although there are no signs of a bullish reversal, sellers need to be cautious as ₹55,400 is a good support.
If ₹55,400 is breached, we can see another downswing towards ₹54,400. But if there is a rebound, the contract will find resistance at ₹56,400.
Trade strategy: Target of our short positions at ₹55,400 was hit last week. Since the gold futures are now hovering at a support, do not initiate fresh shorts. As the trend is bearish, long positions are also not recommended at this point of time. So, traders can stay away now.
Initiate fresh shorts when the contract decisively breaches ₹55,400. Target and stop-loss can be at ₹54,400 and ₹56,000 respectively.
MCX-Silver (₹64,532)
The May silver futures declined sharply in the second half last week. Even though it has a minor support at ₹64,500, the price action suggests an extension of fall towards the next support at ₹63,000. Thus, silver is expected to underperform gold this week.
If ₹63,000 is breached, there might be another leg of downtrend — possibly towards ₹60,000. On the other hand, if the contract rebounds, either from the current level or after a dip to ₹63,000, it might rally to ₹67,500.
Trade strategy: Our revised stop-loss at ₹66,000 for short position on March futures triggered last week just before the fall. Yet, the position was profitable as it was initiated at ₹67,576. Since the risk-reward ratio is not favourable for positional sell trades, avoid taking such positions.
However, one can take short-term positions. That is, short below ₹64,500 with a stop-loss at ₹65,250 for a target of ₹63,000.
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