Derivatives

Bullion Cues: Will gold and silver break the range?

Akhil Nallamuthu |BL Research Bureau | Updated on: Jun 18, 2022

Breakout in gold turned false

Gold and silver were volatile last week. The US dollar remained as the major driver of the bullion prices. Although both the metals lacked direction, they ended with a weekly loss. In the global spot market, gold depreciated by 1.7 per cent to close at $1,839.4 per ounce and silver was down by 1 per cent as it ended at $21.65 an ounce.

On the Multi Commodity Exchange (MCX), gold futures (August expiry) was down by 1.7 per cent as it closed at ₹50,834 (per 10 grams). Silver futures (July series) gained 1.6 per cent and closed at ₹60,937 (per kg).

MCX-Gold (₹50,834)

Breakout of the ₹51,400-51,600 price band in the MCX Gold August futures a fortnight ago turned out to be false as there was no follow-through rally last week. We had warned about the validity of the breakout because such a move did not happen in terms of dollars, which is the primary driver of prices.

In fact, the contract fell in the initial part of the week. Although it pared some losses, the contract ended up posting a weekly loss.

That said, the gold futures on the MCX seem to be forming a range i.e., it has been oscillating between ₹51,800 and ₹50,000. Therefore, unless it decisively breaches either of the two, the next leg of trend cannot be confirmed. So, traders can adopt a range trading strategy until the contract moves out of the above-mentioned range.

A breach of ₹51,800 can lift the contract initially to ₹53,000 and then possibly to ₹54,000. On the other hand, if the contract slips below ₹50,000 it can shift the near-term stance bearish. Consequently, we could see a fall to ₹48,000. A breach of this level can drag the contract to ₹46,400.

MCX-Silver (₹60,937)

The July futures of silver on the MCX, like gold futures, declined in the first half of the week. The contract briefly dropped below the support of ₹60,000 to mark an intraweek low of ₹59,358. But then, it recovered and closed at ₹60,937 keeping the support valid at ₹60,000. On the upside, ₹62,500 has been blocking the bulls. Hence, the contract is now treading in the range of ₹60,000-62,500 and until it moves out of this range the next leg of trend will remain unclear. So, participants can execute range trading strategies until the silver futures move out of the ₹60,000-62,500 range.

A breach of ₹62,500 can give it a positive impetus which can take the contract to the nearest barrier at ₹65,000. A rally above this can lift the contract to ₹66,800. But in case if price drops below ₹60,000, there is an immediate support at ₹58,000. A breach of this level can turn the medium-term trend negative. Nearest support below ₹58,000 is at ₹55,000.

Published on June 18, 2022
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