Gold and silver opened the week on the front foot on Monday. But the tide turned against the precious metals in the subsequent sessions. However, the yellow metal was impacted more than silver. That is, in the international spot market, gold prices fell by 2.4 per cent last week to close at $1,674.9 per ounce. However, silver managed to wrap up the week on a positive note by gaining 4.2 per cent to end at $19.56 an ounce.
Similar trend was seen in the domestic market. Gold futures (October series) on the Multi Commodity Exchange (MCX) lost 2.3 per cent to end at ₹49,380 (per 10 gram) versus the previous week’s close of ₹50,529. On the other hand, silver futures (December expiry) ended the week 3 per cent higher at ₹56,720 (per kg) compared to the preceding week’s close of ₹55,050.
The downward pressure in the second half of last week was largely due to the rally in the dollar. The US treasury yields too hardened following the inflation number. The inflation in the US stood elevated at 8.3 per cent in August.
The range of ₹50,000-52,600, within which the gold futures has been trading over the past few months, was finally breached last week as the October contract on the MCX closed the week at ₹49,380. This has turned the outlook bearish for gold futures.
The bearish inclination is supported by the increase in the cumulative Open Interest (OI) of gold futures on the MCX. The OI went up to 18,553 contracts on Friday compared to 17,789 contracts a week ago.
Therefore, the likelihood of the downswing extending looks high. The contract could dip to the nearest support of ₹48,000. A breach of this level can drag the contract to the subsequent support at ₹46,000.
On the other hand, if there is a rally from here, the bulls will face hurdle at ₹50,000 and then at ₹50,700. For the gold futures to turn the trend bullish, it should rally past ₹51,000. Interestingly, the 20-, 50- and 100-day moving averages (DMAs) lie at around this level.
Although the price action of silver futures is not as bearish as gold futures, it is not very bullish either. The December silver futures could not rally above the 50-DMA, which now lies at around ₹57,000. In fact, the contract inched down along with the 50-DMA between Tuesday and Friday last week. So, for the bulls to take control, they should at least push the price above ₹60,000 – a strong resistance. Until then, the bears will have good chance for a comeback.
A breakout of ₹60,000 can lift the contract to ₹64,000 quickly, whereas if price drops from the current level, it can find initial support at ₹55,000, where 20-DMA lies. Below this level, the notable support is at ₹51,800.