Commodity Analysis

Gold poised near a crucial resistance

Gurumurthy K | Updated on June 16, 2019 Published on June 16, 2019

The Fed meeting this week could set the trend

Gold prices witnessed some wild swings last week. The global spot gold prices fell initially to a low of $1,320 per ounce, but managed to claw back from there, recovering all the loss. The prices surged to a high of $1,358 on Friday, before closing the week on a flat note at $1,341.7 per ounce.

Silver, on the other hand, tumbled over 2 per cent on Monday last week. Though it later managed to move up and recovered all the loss, it failed to sustain higher. The global spot silver made a high of $15.11 per ounce and fell sharply from there, giving back all the gains. Silver closed the week at $14.88 per cent, down 0.9 per cent for the week. On the domestic front, the gold and silver futures contract on the Multi Commodity Exchange (MCX) moved in tandem with the global prices. The MCX-Gold futures contract was up 0.3 per cent for the week. The contract closed at ₹33,045 per 10 gm. The MCX-Silver futures contract closed the week at ₹37,035 per kg and was down 0.8 per cent.

Watch the Fed

Gold is now closer to a crucial resistance level of $1,360. Whether it breaks above this hurdle or not will depend largely on the outcome of the much-awaited US Federal Reserve meeting on Wednesday. Hopes of the Fed changing its stance towards cutting rates are high. The possibility of the Fed cutting rates for the rest of the year has been largely priced in the market.

So, it will be important to see the number of rate cuts the Fed projects. This will be key in deciding whether gold prices will go up further, breaking above $1,360, or fall on the back of profit-booking.

Dollar strengthens

The US dollar index managed to sustain above the key support level of 96.5 and surged above 97 again. The index was up 1.1 per cent for the week and closed on a strong note at 97.57. The near-term outlook is positive. The index can move up further to 97.75 and 98. Such an up-move can cap the upside in gold.

Gold outlook

The weekly candle indicates clear indecisiveness in the market over the outcome of the US Federal Reserve meeting this week. Gold could remain in the broad $1,320-1,360 range, well ahead of the Fed meeting. The outcome will decide on whether gold will cross $1,360 or fall below $1,320. A strong break above $1,360 will be bullish. Such a break can take gold initially up to $1,370 and $1,380. A further break above $1,380 will then increase the likelihood of the up-move extending to $1,400. On the other hand, if gold declines below $1,320, it can fall to $1,300 and $1,285 again.

On the domestic front, the outlook for MCX-Gold (₹33,045 per 10 gm) is positive. The resistance-turned-support level of ₹32,500 held very well last week. The contract fell to a low of ₹32,486 and reversed sharply higher again. As long as the contract trades above ₹32,500, there is a strong likelihood of it rallying to ₹33,600 and ₹33,750. The bullish outlook will get negated only if the contract declines decisively below ₹32,500. In such a scenario, a revisit of ₹31,500 and ₹31,300 levels on the downside is possible.

Silver outlook

Silver ($14.88 per ounce) has a series of resistances ahead at $15, and then between $15.15 and $15.20. A strong break above $15.20 is needed to turn the outlook to bullish. Such a break can take silver higher to $15.50 and $15.65. But as long as silver remains below $15.20, the outlook is negative and a fall to $14.5 and $14.35 is possible again.

The near-term outlook for the MCX-Silver (₹37,035 per kg) is unclear. The resistance near ₹37,750 is holding well. The contract can trade sideways between ₹36,400 and ₹37,750 for some time. A breakout on either side of ₹36,400 or ₹37,750 will then decide the direction of the next move. A break below ₹36,400 can target ₹35,500. On the other hand, if the contract manages to rise past ₹37,750, it could surge to ₹38,000 and even ₹39,000 thereafter.

The writer is Chief Research Analyst at Kshitij Consultancy Services

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Published on June 16, 2019
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