Gold glitters on dollar weakness

Gurumurthy K | Updated on March 09, 2018

Gold prices rose 2.2 per cent last week to close the calendar year on a positive note at $1,302 per ounce. The yellow metal has surged 13 per cent in 2017, up for the second consecutive year — a sign that the multi-year downtrend that was in place since 2011 has come to an end. Silver prices were up 3.7 per cent last week. Silver underperformed gold in 2017, closing the year at $16.94 per ounce, up 7 per cent over the 12 months. However, gains on gold and silver in the domestic market were limited.

The rupee’s strengthening against the dollar played spoilsport. The gold futures contract traded on the Multi Commodity Exchange (MCX) closed at ₹29,156 last week, up 6.2 per cent in 2017. The MCX-Silver futures contract closed at ₹39,237 per kg, up just 0.5 per cent for the year.

Weak dollar

A sharp fall in the dollar over the last couple of weeks worked well for gold prices. The dollar index fell about a per cent last week, breaking below a key support level of 93. The index is currently at 92.3. The outlook is bearish. The level of 93 will now act as a strong support and cap the upside. There is a strong likelihood of the index breaking below 92 and falling to 91 in the coming weeks. The possibility of the index tumbling to even 90 levels over the medium term also cannot be ruled out. Such a fall in the dollar index is likely to push gold prices to $1,375, or higher, in the coming weeks.

Gold outlook

The strong rally last week took global spot gold ($1,302 per 10 gm) well above a key resistance level of $1,290. This level will now serve as a good support. A rally to $1,340 and $1,345 is likely in the coming days. A strong break above $1,345 can take it further higher to $1,365. The region between $1,365 and $1,375 is a crucial long-term resistance zone. Inability to break above this hurdle can trigger a pull-back move to $1,320 or $1,300 over the medium term. On the other hand, the near-term view will turn negative only if gold declines below $1,290. Such a break can drag it to $1,280 or $1,275. The downside is expected to be limited to $1,270 at the moment.

MCX-Gold (₹29,156 per 10 gm) can move up in the near term to test the key resistance around ₹29,335. A strong break above this can take the contract higher to ₹29,725. But a pull-back can drag it to ₹28,900 in the coming week.

Silver outlook

Global spot silver ($16.94 per ounce) has resistance near current levels in the $17.10-$17.20 zone. If it breaches this hurdle, it can rise to $17.5 or even $18. Support is around $16.60. A break below can drag it to $16.40 or lower. MCX-Silver (₹39,237 per kg) has key resistance near current levels at ₹39,325 and then at ₹39,500. Inability to break above ₹39,500 can pull it lower to ₹38,700. But a strong break above will boost momentum. Such a break could see the contract rallying to ₹40,000 thereafter.

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Published on December 31, 2017
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