Commodity Analysis

Gold on a strong footing

Gurumurthy K | Updated on January 08, 2018 Published on January 07, 2018

A weak dollar can push the yellow metal prices further higher

Gold has begun the new year on a positive note. The global spot price sustained well above the psychological $1,300 per ounce mark all through the week. The yellow metal surged 1.3 per cent last week and closed at $1,319 per ounce. It has been in a strong rally over the last four consecutive weeks.

Silver outperformed gold last week by surging 1.7 per cent. The global spot silver prices surged, breaking decisively above the psychological resistance level of $17 ounce. Silver made a high of $17.29 before closing the week at $17.22 ounce.

But on the domestic front, the currency movement continues to play spoilsport. The Indian rupee strengthened beyond 64 levels and closed the week at 63.37 against the dollar last week. This limited the gains for gold and silver in rupee terms. The gold futures contract on the Multi Commodity Exchange (MCX) closed the week at ₹29,217 per 10 gm and was up just 0.21 per cent. The MCX-Silver futures contract closed the week on a flat note at ₹39,253 per kg.

Dollar supports

Weakness in the US dollar continues to support bullion prices. The US dollar index hovered around 92 all through the week. It fell to a low of 91.75 and closed the week 0.8 per cent lower at 91.95. A key resistance is at 92.25. The index can get a slight breather if it breaks above this hurdle. Such a break can give a relief rally to 93. But as long as the index remains below 92.25, there is a strong likelihood of it falling to 91 in the short term. Such a fall can help in pushing gold prices further higher in the coming days.

Gold outlook

The global spot gold ($1,319 per ounce) has broken above $1,300 decisively. Immediate resistance is at $1,325. Inability to break above this hurdle can keep gold in a sideways range between $1,300 and $1,325 for some time. A fall breaking below $1,300 is less likely at the moment. As such, an eventual break above $1,325 can take the yellow metal higher to $1,340 or $1,345.

A further break above $1,345 will increase the likelihood of the rally extending to $1,365 or $1,370 in the coming weeks. The region between $1,365 and $1,370 is a crucial long-term resistance level that will need a close watch.

On the domestic front, the MCX-Gold (₹29,217 per 10 gm) is hovering above a key support level of ₹29,100. If it manages to sustain above this support, a rise to ₹29,365 or ₹29,400 is possible in the near term. A strong break above ₹29,400 is needed for the contract to gain fresh momentum. Such a break will pave the way for a fresh rally to ₹29,700 and ₹30,000 thereafter.

On the other hand, if the contract declines below ₹29,100, it can test ₹29,000 initially. A break below ₹29,000 will increase the likelihood of the fall extending to ₹28,800 and ₹28,750 thereafter.

Silver outlook

The global spot silver ($17.22 per ounce) has a key resistance near current levels in between $17.25 and $17.30. A strong break above $17.30 will see the rally extending to $17.75. Support is at $16.90. A break below it can take silver lower to $16.6 initially. A further break below $16.6 can drag the prices lower to $16.3.

MCX-Silver (₹39,253 per kg) was range-bound last week. Resistance is in between ₹39,300 and ₹39,400. A strong break above ₹39,400 is needed for the contract to resume its up-move. Such a break can take it to ₹40,000 or even higher.

But if the contract remains below ₹39,400, a dip to test ₹38,500 is likely. A break below ₹38,500 can drag the contract further lower to ₹38,000.

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Published on January 07, 2018

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