Commodity Analysis

Gold can consolidate in the near term

Gurumurthy K | Updated on April 07, 2019 Published on April 07, 2019

A breakout on either side of $1,280 or $1,305 will decide the next move

Gold oscillated between $1,280 and $1,300 per ounce all through last week. The global spot gold price closed on a mixed and flat note last week at $1,291.7.

Silver fell below the key support level of $15, but managed to bounce back, recovering all the loss. The global spot silver prices also closed the week on a flat note at $15.11 per ounce.

Though the US dollar index remained broadly in a narrow range last week, gains in the global equity segment seems to be capping the upside in gold.

On the domestic front, the gold and silver futures contract on the Multi Commodity Exchange (MCX) closed the week with a marginal loss. Both the MCX-Gold and MCX-Silver futures contract were down 0.6 per cent each last week. The MCX-Gold contract closed at ₹31,542 per 10 gm. MCX-Silver closed the week at ₹37,519. The MCX-Silver contract tumbled 2 per cent intra-week. The contract tested the key level of ₹37,000 and bounced from there, recovering most of the loss.

Dollar outlook

The US dollar index (97.39) was stuck in a narrow range between 96.95 and 97.5 in the past week. As long as it trades above 97, the near-term view will be positive. A rise to test 98 is likely in the coming days. An inability to breach 98 can drag the index lower to 97 or even 96 again in the short term. In such a scenario, the downside in gold will be limited and the prices can bounce back. But if the dollar index breaks above 98, it can rally to 98.5 and 99 in the coming weeks. Such a rally in the index can keep gold under pressure and drag the prices further low.

Gold outlook

The near-term outlook for gold ($1,291.7 per ounce) is mixed. The support at $1,280 is holding well. But the yellow metal seems to lack buying interest to take it higher. Key resistances are at $1,300 and $1,305. As long as gold trades above $1,280, an up-move to test $1,300 and $1,305 is possible in the near term. An inability to breach $1,305 can drag gold lower to $1,290 and $1,280 again. Broadly, gold can remain range-bound between $1,280 and $1,305 for some time. A breakout on either side of $1,280 or $1,300 will then decide the direction of the next move.

A strong break above $1,305 will see gold rallying to $1,320 again. A further break above $1,320 will then increase the likelihood of the up-move extending to $1,330 and $1,335. On the other hand, if the yellow metal declines below $1,280, it can come under renewed pressure. Such a break can drag gold to $1,270 and $1,265.

On the domestic front, the near-term outlook for the MCX-Gold (₹31,542 per 10 gm) futures contract is negative. It can fall to ₹31,200 in the coming days. If the contract manages to bounce back from this support, a relief rally to ₹32,000 and ₹32,200 is possible. But a break below ₹31,200 will increase the downside pressure and drag the contract to ₹30,500 or even lower in the coming weeks.

Silver outlook

The global spot silver ($15.11 per ounce) has a resistance at $15.25 and support at $14.85. It can consolidate between $14.85 and $15.25 for some time. A breakout on either side of $14.85 or $15.25 will determine the next move. A strong break above $15.25 can take silver higher to $15.40 and $15.50. On the other hand, if silver declines decisively below $14.85, it can come under pressure. Such a break will drag silver lower to $14.45; this move could be swift as $14.85 is a crucial support. A sharp fall below $14.85 will also increase the possibility of silver revisiting $14 over the medium term.

The bounce in the MCX-Silver (₹37,519 per kg) from ₹37,000 has given some relief to the contract. A test of ₹38,000 is possible in the near term. However, the contract has to rise past ₹38,000 to turn the outlook positive. A break above ₹38,000 can take the contract higher to ₹38,600 and ₹39,000.

On the other hand, if the MCX-Silver contract reverses lower from ₹38,000, it will remain vulnerable to a fall below ₹37,000. In such a scenario, there is a strong likelihood of the contract tumbling towards ₹36,500 or even ₹35,500 in the coming weeks.

The writer is Chief Research Analyst at Kshitij Consultancy Services

Published on April 07, 2019

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