Gold and silver saw a decline last week as the US dollar posted a marginal gain. The US treasury yields, which softened in the early part of the week, recovered towards the end of the week. But notably, in terms of rupee, both the precious metals performed better as the Indian currency weakened against the dollar. In fact, gold ended up gaining.
In the international market, gold and silver depreciated 1.1 and 3.5 per cent to close the week at $1,750.8 and $20.95 an ounce, respectively.
Gold futures on the Multi Commodity Exchange (MCX) was up 0.5 per cent as it closed at ₹52,588 (per 10 gram) on Friday, whereas silver futures lost 1.1 per cent to close at ₹60,875 (per kg).
On the fundamental front, the flows continue to be negative in the global gold ETFs (Exchange Traded Funds). However, money managers — large traders have reduced their net short position on the COMEX from nearly 121 tonnes on November 1 to 26 tonnes on November 15. Therefore, the recent rally in price seems to have removed some pessimism.
Technically, the short-term outlook remains bullish despite last week’s price moderation.
The December gold futures on the MCX rallied initially to mark a six-month high of ₹53,200 mid-week. However, it could not stay above the ₹53,000-mark and fell back to close at ₹52,588. Yet, it closed in the green for the week. Along with this, the cumulative Open Interest (OI) increased to 17,149 contracts on Friday compared with 15,755 contracts by the end of the preceding week. Therefore, last week, participants have, most likely, ended by adding longs as prices declined.
We forecast gold futures to decisively break out of ₹53,000 and touch ₹54,000. On the downside, the immediate supports are at ₹52,000 and ₹51,600. The chances for the price slipping below ₹52,000 are low.
Trade strategy: We recommended fresh longs at ₹52,334 last week with initial stop-loss at ₹50,000. Since the price went above ₹53,000, the revised stop-loss will now be at ₹52,300. Retain this position.
If price drops and hits the stop-loss, wait for the price to drop to ₹52,100 and go long again. Add more longs if there is a price dip to ₹51,600. Place the stop-loss at ₹50,000. Thereafter, when the contract rallies past ₹53,200, tighten the stop-loss to ₹52,300. Further, on a rally to ₹53,500 alter the stop-loss to ₹52,800. Book profits at ₹54,000.
The December silver futures could not get over the hurdle at ₹63,000. As it struggled, some of the longs were liquidated as seen from the OI data. This led to a minor decline in price where it posted a loss of 1.1 per cent. The cumulative OI fell over the past week to 19,298 contracts from 19,966 contracts.
As it stands, the silver futures appear to see further correction in price to ₹59,500, a support. Subsequent support is at ₹58,500. That said, we expect the contract to eventually rally past ₹63,000 and touch the resistance at ₹66,000 in the short run. Barrier above this level is at ₹70,000.
Trade strategy: Stay on the sidelines for now as risk-reward is not favourable. There are two alternatives. One, buy with stop-loss at ₹61,500 if the silver futures decisively break out of ₹63,000. Liquidate the longs at ₹66,000.
Two, if there is a price decline, buy at ₹59,500 and at ₹58,500. Place stop-loss at ₹57,000 at first. Thereafter, when the contract surpasses ₹63,000, tighten the stop-loss to ₹61,500. Book profits at ₹66,000.