Commodity Analysis

Gold may consolidate before a fresh rally

Gurumurthy K | Updated on February 10, 2019 Published on February 10, 2019

A range-bound move between $1,295 and $1,325 is possible before a rally to $1,360-1,370

Gold prices fell over a per cent intra-week but managed to recover most of the loss towards the end of last week.

Silver, on the other hand, tumbled 1.6 per cent intra-week before recouping most of the loss.

The global spot silver prices made a low of $15.65 per ounce and reversed from there to close the week 0.54 per cent lower at $15.82 per ounce.

A sharp bounce in the US dollar index kept the bullion prices under pressure in the initial part of the week.

However, fresh concerns on the US-China trade war helped bullion gain safe-haven status and the prices recover.

On the domestic front, the losses on gold and silver prices were wider as the rupee recovered sharply against the US dollar last week. The rupee made a low of 71.84 on Monday and then reversed, recovering the loss to close the week at 71.31 against the dollar.

As a result, the gold and silver futures contract on the Multi Commodity Exchange (MCX) fell more than the global prices.

The MCX-Gold futures contract was down 0.5 per cent for the week and closed at ₹33,242 per 10 gm.

The MCX-Silver contract tumbled the most by 1.2 per cent and closed at ₹40,105 per kg.

Dollar strengthens

The US dollar index surged 1.1 per cent last week to close at 96.64.

The immediate support is in between 96.50 and 96.40.

As long as the US dollar index trades above this support zone, there is a strong likelihood of it extending its rally towards 97.3 and 97.5 in the coming days.

T his may restrict the upside in gold.

But at the same time, any fresh concerns relating to the US-China trade war could help gold gain in spite of a strong dollar.

Gold outlook

The global spot gold ($1,316 per ounce) bouncing from its low of $1,302.85 is a positive. This indicates that the yellow metal is getting fresh buyers around the psychological level of $1,300.

The key support is in the $1,300-1,295 region, which is likely to limit the downside. The outlook will turn negative only if gold breaks below $1,295, which looks less probable at the moment. As long as gold remains above $1,295, an up-move to revisit $1,325 is likely in the coming days. The inability to breach $1,325 can keep the yellow metal in a sideways range between $1,295 and $1,325 for some time. An eventual break above $1,325 will then pave the way for the next targets of $1,360 and $1,370.

On the domestic front, the MCX-Gold (₹33,242 per 10 gm) came off sharply from its high of ₹33,750. The resistance at ₹33,735 seems to be holding well as of now. A near-term dip to test the support at ₹32,775 looks possible. However, a break below this support is less likely. A bounce back from ₹32,775 may have the potential to break the resistance at ₹33,735. Such a break will then increase the likelihood of the contract targeting ₹34,600 thereafter.

Silver outlook

The global spot silver ($15.82) is holding above its $15.60-15.55 region. As long as silver sustains above this support zone, an up-move to $16.2 and $16.3 is possible in the coming days. Broadly, silver can remain range-bound between $15.55 and $16.3 for some time. A breakout on either side of $15.55 or $16.3 will then determine the direction of the next move. The bias remains positive and the possibility is high of silver breaching $16.3 and targeting $16.8 and $17 in the coming weeks.

The MCX-Silver (₹40,105 per kg) futures contract has been range-bound between ₹39,665 and ₹40,785 per kg over the past couple of weeks. A breakout on either side of this range will decide the next move.

A strong break below ₹39,665 can drag the MCX-Silver contract lower to ₹39,300 and ₹39,000. On the other hand, if the contract manages to break the range above ₹40,785, a fresh rally to ₹41,500 is possible.

Published on February 10, 2019
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