Gold loses its sheen...

Gurumurthy K | Updated on May 19, 2019 equities and dollar surge

Gold began last week on a positive note. China retaliating in the on-going trade war with the US by increasing tariffs on US goods intensified the sell-off in equities and boosted gold prices. As a result, global spot gold prices surged, breaking above the key resistance level of $1,292, and tested the psychological $1,300 mark. But the party was short-lived. The yellow metal retreated from a high of $1,303 and fell sharply, giving back all the gains. Gold closed at $1,277.5 per ounce and was down 0.7 per cent for the week.

Equities recover

A strong recovery in global equities took the sheen off gold. Major indices including the Dow Jones Industrial Average and Nikkei managed to bounce over 2 per cent from their week lows. This capped the upside and triggered a pull-back in gold last week.

Dollar surges

Along with the recovery in equities, the strong US dollar also pulled gold lower last week. The US dollar index (98) dipped in the initial part of the week. However, the index reversed sharply higher, after testing the key support level of 97. It closed on a strong note above the key resistance level of 97.8. The outlook is bullish. The index can rise further to 98.8 and 99.25 in the short term. This can limit the upside in gold and push the yellow metal prices further lower in the coming days.

Gold outlook

The pull-back from $1,303 last week keeps the broader bearish outlook intact. An immediate resistance is at $1,280 and the next significant one is at $1,290. As long as gold trades below these resistances, there is a strong likelihood of it falling to $1,270 in the near term. A bounce from $1,270 can take the prices higher to $1,280-1,285 again. But a break below $1,270 will then increase the likelihood of the fall extending initially to $1,266. A further break below $1,266 will then drag gold lower to $1,260 or even $1,255 in the coming weeks.

On the domestic front, the gold futures contract on the Multi Commodity Exchange moved in tandem with the global prices. The MCX-Gold futures contract was down 0.4 per cent for the week. It closed at ₹31,791 per 10 gm.

The contract has been trading in a sideways range between ₹31,240 and 32,550 for more than two months. This sideways range remains intact. Within this range, the near-term view is negative. The contract can fall to ₹31,500-31,400 in the coming days, after which a bounce to ₹31,800 and ₹32,000 is possible. Such a bounce would then continue to keep the contract in the sideways range. But if the contract breaks the range below ₹31,240, it can fall to ₹31,120.

Silver tumbles

Silver continues to underperform gold. The global spot silver prices were beaten down last week. The prices have declined sharply below the key $15.60-15.50-per-ounce support zone. The global spot silver closed the week at $14.40 per ounce and was down 2.6 per cent for the week.

The MCX-Silver futures contract also tumbled in line with the global prices. The MCX-Silver contract closed the week at ₹36,577 per kg and was down 2.1 per cent.

Bearish outlook

The outlook for the global spot silver remains bearish. The level of $14.50 will now act as a strong resistance in the near term. A fall to $14-13.90 looks likely in the coming days. However, the region between $14 and $13.90 is a strong long-term support for silver. The price action around this support zone will need close watching. A strong bounce from this support zone could be the beginning of a fresh leg of a long-term up-move.

The MCX-Silver futures contract has an intermediate support at ₹36,300. If it manages to bounce from this support, a rise to ₹37,000 and ₹37,300 is possible. But if the contract declines below this support, it can come under renewed pressure.

Such a break will increase the likelihood of the contract tumbling to ₹35,500 or even ₹35,000 in the coming weeks.

The writer is Chief

Research Analyst at

Kshitij Consultancy Services

Published on May 19, 2019

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