Commodity Analysis

Gold gains sheen on weak dollar

Gurumurthy K | Updated on January 15, 2018 Published on March 19, 2017

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PO20_GOLD

Fed Chair Janet Yellen leaves median projection for 2017 unchanged

Gold prices made a smart recovery, gaining about 2 per cent in the past week. All thanks to the US Fed Chair Janet Yellen for sticking to her earlier projection of three rate hikes for 2017.

The global spot gold price touched a low of $1,197 per ounce on Tuesday and reversed sharply thereafter to close the week at $1,228 per ounce. Spot silver prices were also up 2 per cent last week, closing at $17.35 per ounce.

The US Fed on Wednesday increased the interest rate by 25 basis points as expected by the market and left the median projection for 2017 at 1.4 per cent; unchanged from the forecast made in its previous meeting in December 2016. It leaves scope for only two more rate hikes by the end of the year.

The dollar index ran into a strong sell-off as the Fed failed to provide any sign of fresh and aggressive move on the rate hike front. The dollar index tumbled from around 101.5 to close the week at 100.3, down 1 per cent for the week. Inability to bounce above 101 from current levels may keep the index under pressure

A strong break below 100 can drag the dollar index down to 99 or even 98.5 in the coming weeks. This could support gold prices to rise higher in the coming days.

Outlook

Gold prices have an immediate resistance around $1,240. A strong break above this hurdle can boost the momentum and take the prices higher to $1,260 initially. Further break above $1,260 will pave way for the next targets of $1,280 and $1,300.

On the other hand, if the prices reverse lower from $1,240, a range-bound move between $1,200 and $1,240 is possible for some time. The yellow metal will come under pressure only if it breaks below $1,200 decisively. Such a break can drag the prices lower to $1,175 or even $1,150 thereafter.

But the price action on the daily chart signals the absence of a strong selling interest to drag it below $1,200. This leaves the possibility high of the prices sustaining above $1,200 in the near term.

Silver, on the other hand, has bounced back after taking support from around $16.80 per ounce. Immediate support is at $17.15, which is likely to limit the downside in the near term. A rise to $18 is likely in the coming weeks as long as prices stay above $17.15.

Inability to break above $18 may keep may trigger a downward reversal to $17.5 or even lower. In such a scenario, silver prices can remain range- bound between $17 and $18 for some time. Silver will gain fresh momentum only if it breaks above $18 decisively. Such a break can take the prices higher to $18.5 or even $19 thereafter.

On the domestic front, the gold futures contract on the Multi Commodity Exchange (MCX) has reversed sharply higher from the low of ₹27,907 per 10 gm in the past week. Technically, this reversal is significant as it has happened from the psychological as well as a Fibonacci retracement supports around ₹28,000.

There is a strong likelihood of the contract sustaining above ₹28,000 in the coming days. A rise to ₹29,000 is likely in the near term. A strong break above ₹29,000 will take the contract higher to ₹29,750 in the coming weeks.

The MCX-Silver futures contract, on the other hand, does not look as strong as MCX-gold.

The MCX-Silver, currently around ₹40,900 per kg has strong resistance around ₹41,500 and then at ₹42,000.

The downside pressure will ease only if the contract breaks above ₹42,000 in which case it can then target ₹43,000. Inability to break above ₹41,500 may trigger a pull-back move to ₹40,000 once again.

Since gold is looking relatively stronger, an immediate break below ₹40,000 is less probable. As such, there is a possibility of seeing a range-bound move between ₹40,000 and ₹41,500 in MCX-Silver for some time.

Published on March 19, 2017

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