Commodity Analysis

Gold regains sheen

Gurumurthy K | Updated on January 11, 2018 Published on May 21, 2017

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As US political uncertainty beats down the dollar

After falling for four consecutive weeks, gold has regained safe-haven status. Gold prices recovered sharply and surged 2.2 per cent last week to close at $1,255 per ounce. Silver prices were up 2.4 per cent last week and closed at $16.84 per ounce.

On the domestic front, gold futures contract on the Multi Commodity Exchange (MCX) moved in tandem with global prices and closed 2.2 per cent higher for the week at ₹29,635 per 10 gm. Silver, on the other hand, closed at ₹39,111 per kg, up 2.5 per cent for the week.

Dollar gets ‘Trumped’

A series of unexpected developments in US politics took the sheen off the dollar. The greenback was beaten down on news that US President Donald Trump shared confidential information with Russia and the President tried to stop an investigation against a former National Security Advisor. These developments in US politics dragged the dollar index lower by 2 per cent last week, from around 99.20 to the current levels of 97.11.

There is room for the index to fall further to 96.85 or even 96.45, which are the next two key supports for the index. An upward reversal from either of these supports may take the dollar index higher to 97.5 or 98. But a further fall below 96.45 will increase the likelihood of the index falling to 96 or even 95, going forward. Such a fall will help gold prices surge further.

Gold outlook

Global gold prices ($1,255 per ounce) have a strong support in the $1,245-1,240 region which is likely to limit the downside in the near term. As long as prices sustain above this support zone, a rise to $1,275 and $1,280 is possible in the short term. A strong break and a decisive close above $1,280 will improve the possibility of the price revisiting $1,300 levels.

But, if the price breaks below $1,240 in the coming days, it can fall to $1,235 or $1,230. However, the outlook will turn negative only if the price breaks below the crucial support at $1,220, which is less likely at the moment.

On the domestic front, the MCX-Gold futures contract (₹28,635 per 10 gm) rose sharply last week after forming a strong base around ₹28,000 earlier in the month. Immediate supports are at ₹28,460 and ₹28,400. While above these supports, a rise to ₹29,220 or even ₹29,360 is possible in the coming days.

The outlook for the contract will turn negative only if it falls below ₹28,000 decisively; the next target is ₹27,500. But such a fall is unlikely as the weak rupee and strong global prices may aid in limiting the downside.

Silver outlook

Global silver price ($16.84 per ounce) has reversed higher over the last couple of weeks from the psychological $16 support. Support is at $16.5. A strong break above the immediate resistance at $17 can take it higher to $17.3 and $17.5. MCX-Silver (₹39,111 per kg) has a strong resistance at ₹39,500. Inability to break above this hurdle can take it lower to ₹38,500 or ₹38,350. But a strong break above ₹39,500 in the coming days will clear the way for ₹40,650 or even ₹41,000.

Key short-term support is at ₹38,000, which has to be broken for the outlook to turn negative. Next supports are at ₹37,500 and ₹37,000.

Published on May 21, 2017
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