Commodity Analysis

Gold gains sheen on high risk-aversion

Gurumurthy K | Updated on August 11, 2019 Published on August 11, 2019

But traders are advised caution as the up-move has been very fast and sharp

Gold price continues to surge. Last week, the global spot gold prices surged, breaking above the key resistance level of $1,460 per ounce, and tested the psychological mark of $1,500 per ounce. The yellow metal made a high of $1,510 and came off from there to close the week at $1,496.95, up 3.9 per cent for the week.

Silver, on the other hand, continues to outperform gold. The global spot silver prices surged 4.8 per cent the past week and closed at $16.98 per ounce. The strong rise last week has taken silver well above the key resistance level of $16.60, which was capping the upside over the last few weeks.

High risk-aversion in the market, which triggered a strong sell-off in the global equities, triggered this rise. Weakness in the dollar index also gave additional support.

Gold outlook

At the moment, the global spot gold ($1,496.95) seems to lack strong follow-through buyers to take it decisively above $1,500. An inability to breach $1,500 in the coming days can trigger a corrective fall to $1,468 and $1,465 in the near term. A break below $1,465, though less probable, can see the corrective fall extending to $1,450-1,440.

On the other hand, a strong break and a decisive close above $1,500 are needed for gold to resume its up-move. Such a break can take the yellow metal higher to $1,530-1,540 in the short term.

However, caution is needed at this point of time as gold has surged sharply in a very short span of time. As such, the yellow metal can find a top anytime soon and see a sharp correction in the coming weeks.

Read: Gold prices soar. Should you invest?

Silver outlook

Silver ($16.98 per ounce) has an important resistance at $17.30, which was tested last week. It has to breach this hurdle to resume the up-trend targeting $17.80 and $18.

An inability to break $17.3 can keep the prices range-bound between $16.6 and $17.3 in the near term. It will also keep the possibility high of silver declining below $16.60 towards $16.20 going forward.

On the domestic front, the gold futures contract on the Multi Commodity Exchange (MCX) skyrocketed and outperformed the global prices to a larger extent. Weakness in the rupee helped the domestic prices outperform.

The MCX-Gold contract was up 6.8 per cent last week and closed at ₹37,992 per 10 gm. The MCX-Silver futures contract, on the other hand, moved in tandem with the global price. The contract was up 4.8 per cent and closed at ₹43,324 per kg last week.

The MCX-Gold (₹37,992 per 10 gm) has important resistances near ₹38,100, ₹38,300 and ₹38,500. An inability to breach these hurdles can trigger a sharp corrective fall to ₹36,700-36,600 in the short-term.

On the other hand, a strong break above ₹38,500 will see the current rally extending to ₹39,000 and even higher levels. But on the charts, the rally looks stretched and the upside is likely to be capped at ₹38,500 for now. As such, there is a strong likelihood of seeing a corrective fall in the coming days.

Similarly, the MCX-Silver (₹43,324 per kg) has an immediate resistance at ₹43,625. A strong break and a decisive close above this level is needed for the contract to extend the current up-trend towards ₹45,000 or even higher. An inability to breach ₹43,625 can trigger a sharp corrective fall to ₹41,750-41,650 in the short term.

The writer is Chief Research Analyst at Kshitij Consultancy Services

Published on August 11, 2019
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