BULLION CUES. Can gold and silver race past roadblocks ahead?

The atmosphere continues to be conducive for the bears as the rallies in bullion seem to be unsustainable. As the US treasury yields dropped in the first half of last week, it dragged the dollar along with it. Thus, the price of gold and silver managed to move up. But on Friday, yields and the dollar made a U-turn and started to rise. Consequently, bullion prices fell, giving up most of the gains they made in the preceding sessions, especially gold. Considering performance on a close-to-close basis, bond yields, the dollar, and gold made only marginal move last week.

The 10-year US treasury yield closed at 1.62 per cent compared to previous week’s 1.58 per cent, the dollar index (the measure of dollar versus a basket of six major currencies) closed at 91.68 as against 91.98 – preceding week’s close and gold, in dollar terms, settled at $1,726.4 (per ounce) versus $1,700.8. But silver made some progress as it ended at $25.90 (per ounce) versus $25.19, gaining 2.8 per cent.

In the domestic market, gold futures (April expiry) on the Multi Commodity Exchange (MCX) ended nearly flat at ₹44,750 (per 10 grams) compared to preceding week’s ₹44,683 whereas silver futures (May expiry) on the MCX wrapped up the week at ₹66,844 against previous week’s ₹65,603, thereby posting a gain of 1.9 per cent. Nevertheless, the downtrend has not completely reversed in gold as well as silver. Moreover, bond yields and the dollar are expected to gain going forward, potentially pulling down bullion further.

MCX-Gold (₹44,750)

As bulls tried to recover some lost ground, the price of April futures of gold on the MCX went up in the first half of last week. However, the rally lacked strength to put on a meaningful fight and began losing steam as the contract approached the crucial resistance level of ₹45,000.

Unable to extend the gains beyond this level, the contract moderated a bit and closed at ₹44,750 on Friday after marking an intraday low of ₹44,271. So long as the price stays below ₹46,500 the trend will be inclined to downside and this is validated by the indicators like the relative strength index (RSI) and the moving average convergence divergence (MACD) indicators, which lie in the negative territory. However, there are few indications that the downtrend might be losing steam. The slope of the line joining the recent lows in RSI is flattening and a drop in volume can be observed over the past week. This does not suggest a trend reversal but a caution that traders holding short positions can consider getting out. For the short-term, the strategy can be as follows. Exit sell positions and initiate fresh shorts if the contract breaks below the support of ₹44,000. A breach of ₹44,000 can result in another leg of downtrend where the contract can fall towards support at ₹43,500 and ₹43,000. But long positions are not advised as long as the contract stays below the important resistance at ₹46,500. As we mentioned last week, fresh investments for the long-term can wait till the hurdle at ₹46,500 is breached.

MCX-Silver (₹66,844)

Even as the silver futures (May expiry) witnessed a similar price movement as gold, the former closed with a minor gain of 1.9 per cent whereas the latter closed almost flat.

Silver has not been as bearish as the yellow metal and has been outperforming against it since the beginning of the current calendar year. The year-to-date return of gold futures stands at minus 10.8 per cent whereas silver futures has lost 3.2 per cent. This is because, as the preference for safety faded, industrial applications of silver kept it afloat.

Last week, the upmove was blocked by the resistance at ₹68,000 from where the contract declined. The bearish bias is supported by indicators like the RSI and MACD, which entered the bearish zone after the contract broke out of the range on the downside in the first week of the current month. The average directional index (ADX) indicates that the downtrend is gaining traction. But despite this, we had recommended not to short the contract as it remains above the important support of ₹65,000. Additionally, the price is above the 200-day moving average (DMA) which lies at ₹65,700. We reiterate that traders can hold back fresh short positions unless the base of ₹65,000 is decisively breached. In the event of the contract breaching this support, we might see a sharp fall.

Notable supports below ₹65,000 can be spotted at ₹63,000 and ₹61,000. Investors with time horizon over and above one year can wait for fresh bullish signals, probably a breakout of ₹70,000.

COMMENT NOW