Derivatives

Bulls may regain momentum in gold

Akhil Nallamuthu | Updated on November 08, 2020 Published on November 08, 2020

The precious metal will likely test the price band of $1,975 and $2,000

The price of spot gold in dollar terms, which was oscillating in a broad range of $1,150 and $1,375 per troy ounce, breached the upper boundary in June 2019 after failing in multiple attempts. The 38.2 per cent Fibonacci retracement level of the previous leg of downtrend coincides at $1,375, making it a key level. Hence, the breakout was important and, consequently, bulls were able to establish a strong uptrend.

After wrapping up 2019 at around $1,517, the rally continued in 2020 as well. The uptrend accelerated between April and August this year and the yellow metal marked a fresh lifetime high of $2,075 in early August. But then the trend reversed, and the price moderated to $1,850 levels.

Following this, it was largely moving in a sideways trend between $1,875 and $1,930.

 

Even as the price corrected, the major trend remains bullish and it will remain so until gold stays above $1,800.

Last week, the upper boundary of the range, ie, $1,930, was breached as gold closed at $1,951.3 on Friday.

Hence, the precious metal seems to have gained renewed bullish momentum, which can possibly take the price higher.

 

Supporting the positive bias, the daily relative strength index (RSI) is pointing upwards ,and stays above the midpoint level of 50, showing considerable bull strength.

The moving average convergence divergence (MACD) indicator on the daily chart is showing signs of fresh positive momentum.

MCX

The price of spot gold on the Multi Commodity Exchange (MCX), which appreciated by nearly 24 per cent in 2019, went on to register further gains this year. Bulls looked strong as it extended the up-move to mark a fresh lifetime high of ₹56,018 per 10 grams in early August.

However, it witnessed a corrective decline where the price dropped to about ₹50,000. But since this level acted as a good base, the decline was arrested, following which the price entered a sideways trend.

Last week, on the back of fresh bullish momentum, gold broke out of the range and, as a result, the price is likely to head northwards.

As on Friday, the price had appreciated by 34 per cent to ₹52,192 year-to-date. This return is higher than the 28 per cent return in dollar terms as the rupee remained weak. Going ahead, if the Indian currency stays weak against the dollar, gold might produce comparatively higher returns in rupee terms. If it manages to close in the green in 2020, it will be the fifth consecutive year with positive returns in rupee terms.

Outlook

On the charts, the yellow metal looks bullish and the recent price action shows a double-bottom chart pattern — a bullish reversal chart pattern — with neck-level at $1,930. The pattern now stands confirmed as price closed at $1,951.3 last Friday.

 

So, gold will most likely appreciate and test the price band of $1,975 and $2,000.

A breakout of this range can intensify the rally where the price could retest the lifetime high of $2,075 and, in the long term, the price can even touch $2,200.

In rupee terms, too, the price is likely to advance from the current levels and rally to ₹53,750 and possibly head towards the prior high of ₹56,018. In the long term, the price can even touch the ₹60,000 mark.

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Published on November 08, 2020
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