Commodity Analysis

Gold may pause before breaching $1,300

Gurumurthy K | Updated on January 13, 2019 Published on January 13, 2019

Fresh buying interest at lower levels can limit the downside in prices

The recent rally in gold seems to be losing momentum. The global spot gold prices have been stuck in a sideways range between $1,275 and $1,300 per ounce over the last couple of weeks.

The global spot gold prices hit a high of $1,297 last Thursday and has come-off slightly from there. The prices closed at $1,290 per ounce, up 0.33 per cent for the week.

Silver, on the other hand, underperformed gold last week. The global spot silver prices have been facing strong resistance around $15.80 per ounce. Silver made a high of $15.82 and closed at $15.60 per ounce, down 0.65 per cent for the week.

The price action indicates that silver is more vulnerable than gold for a corrective fall.

On the domestic front, weakness in the Indian rupee has helped the bullion prices to close higher. The Indian rupee was down over a per cent against the US dollar last week. This has aided the gold and silver futures contract on the Multi Commodity Exchange (MCX) to outperform the respective global spot prices.

The MCX-Gold futures contract has surged 1.5 per cent last week and closed at ₹31,928 per 10 gm. The MCX-Silver futures contract closed at ₹39,336 per kg, up 0.42 per cent for the week.

Dollar outlook

The US dollar index declined below the key support level of 96 last week. The index fell to a low of 95 and has recovered slightly from there to close the week at 95.67, down 0.53 per cent for the week. Support is in the 95-94.9 region, which is holding well as of now.

As long as the index remains above this support, a range-bound move between 94.9 and 96 can be seen for some time. But the overall bias will continue to remain bearish as long the dollar index trades below 96.5.

An eventual break below 95 will drag the index lower to 94. Such a fall will be a good trigger for gold to breach the psychological level of $1,300 in the coming weeks.

Gold outlook

The near-term outlook for gold is mixed. The global spot gold ($1,290 per ounce) may continue to trade sideways between $1,275 and $1,300 for some more time. A break below $1,275 can take gold lower to $1,260. However, the downside is likely to be limited as the overall bias continues to remain positive. As such, an eventual break above $1,300 can take gold initially higher to $1,310 and $1,320. A further break above $1,320 will then target $1,340 and $1,350.

The MCX-Gold (₹31,928 per 10 gm) has a key resistance at ₹32,150. A strong break above this hurdle will take the contract higher to ₹32,600 and ₹33,000 thereafter. But the inability to breach ₹32,150 can pull the contract lower to ₹31,000. In such a scenario, the contract may remain range-bound between ₹31,000 and ₹32,150 for some time.

Silver outlook

The global spot silver ($15.60 per ounce) looks weaker than gold. The price action over the last one week increases the likelihood of a fall to $15.35 or $15.30 in the near term. A break below $15.30 will then drag the prices lower to $15. Strong support is in the $15-14.90 region. A fall below $14.9 looks unlikely at the moment as fresh buyers are likely to emerge around $15 levels.

Silver will regain strength on a decisive break above $15.80. Such a break will then pave way for the next target of $16.20

MCX-Silver (₹39,336 per kg) has support in the ₹39,000-38,900 region. As long as the contract trades above this support zone, a rally to ₹40,500 is possible in the short term. The near-term view will turn negative only if MCX-Silver declines below ₹38,900. The next target is ₹38,500.

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Published on January 13, 2019
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