Commodity Analysis

Gold consolidates ahead of Fed meeting

Gurumurthy K | Updated on July 28, 2019 Published on July 28, 2019

The US monetary policy decision could set the trend

Gold prices remained stable last week. The global spot gold prices oscillated between $1,410 and $1,435 per ounce all through the week. The yellow metal closed at $1,418.9 per ounce, down 0.5 per cent for the week.

Silver continued to outperform gold for the second consecutive week. The global spot silver prices surged 2.8 per cent intra-week to make a high of $16.65 per ounce.

However, the prices reversed lower from there, giving back some of the gains. Silver closed at $16.40 per ounce and was up 1.2 per cent.

All eyes on Fed

The outcome of the US Federal Reserve meeting this week on Wednesday is likely to set the direction of move for gold going forward. The market expects a 25 basis points (bps) rate cut this week. It will have to be seen whether the Fed meets the market expectation or keeps the door open for the rate cut in its next meeting in September. Also, if the Fed decreases the rates by 25 bps this week, it will be important to look for any hint on the pace of rate cuts going forward, which will be key in determining the gold price movement.

Dollar gains

The US dollar index surged in the past week, breaking above the key resistance level of 97.50. The dollar index was up 0.9 per cent for the week and closed on a strong note at 98. As long as the index sustains above 97.5, there is a strong likelihood of it moving further higher to 98.5 in the near term. This could cap the upside in gold.

Gold outlook

Gold ($1,418.9 per ounce) can continue to consolidate in the broad $1,400-1,440 region. Within this range, the possibility is high for gold to decline towards $1,400 ahead of the Fed meeting. The outcome of the Fed meeting on Wednesday could be a possible trigger for gold to break this range on either side. If gold manages to break above $1,440, it can gain fresh momentum.

Such a break can take it initially higher to $1,450. A further break above $1,450 will then increase the likelihood of the up-move extending to $1,475 or even $1,500 thereafter. On the other hand, if gold breaks the range below $1,400, it can come under pressure. In such a scenario, a fall to $1,380 and $1,360 is possible on profit-booking

Silver outlook

The global spot silver ($16.40 per ounce) has been facing strong resistance around $16.60 per ounce. A strong break and a decisive close above $16.60 are needed to extend the current up-move to $17 and $17.35. A key support is at $16.20. A break below $16.20 will negate the chances of the above mentioned rise to $17-17.35. It will also turn the near-term outlook negative and drag silver lower to $15.75 and $15.60.

Domestic price outlook

The gold and silver prices on the Multi Commodity Exchange (MCX) moved in tandem with the global prices. The MCX-Gold futures contract remained subdued all through the week and inched lower. The contract fell 0.8 per cent for the week and closed at 34,773 per 10 gm.

The MCX-Silver futures contract, on the other hand, was up 1.2 per cent last week. The contract closed at 41,152 per kg.

The recent uptrend in the MCX-Gold (₹34,773) seems to be losing steam. The 21-day moving average support at ₹34,680 is a crucial support to watch. A strong break below it can trigger a sharp fall towards ₹34,000 and even ₹33,700 in the coming weeks on the back of profit-booking.

On the other hand, if the contract manages to bounce from ₹34,680, an up-move to ₹35,200 is possible. A further break above ₹35,200 will increase the likelihood of the up-move extending to ₹35,400-35,500 thereafter. It will also keep the possibility high of the contract rallying to ₹36,000 in the coming weeks.

The MCX-Silver (₹41,152 per kg) has key resistances at ₹41,365 and ₹41,750. A decisive weekly close is needed for the contract to keep the up-trend intact. An inability to break these hurdles will increase the likelihood of seeing a corrective fall in the coming days. The support is at ₹40,800. A strong break below this level can trigger the corrective fall. Such a break will see the contract tumbling to ₹40,000 and even ₹39,500 in the coming weeks.

The writer is Chief Research Analyst at Kshitij Consultancy Services

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Published on July 28, 2019
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