Gold remains under pressure

Gurumurthy K | Updated on July 15, 2018

Strong dollar may drag the yellow metal to $1,200 levels in the short term

Gold began the week on a positive note and surged to a high of $1,265 per ounce on Monday last week. However, the bullish momentum was short-lived as the yellow metal reversed lower and continued to fall all through the week. Gold tumbled over 2 per cent intra-week to make a low of $1,236 and managed to bounce from there to close at $1,244 per ounce on Friday.

Silver underperformed gold. The prices fell, breaking below the psychological support level of $16 per ounce.

On the domestic front, both the gold and silver futures contract on the Multi Commodity Exchange moved in tandem with the global spot prices. The MCX-Gold futures contract tumbled 1.5 per cent and closed at ₹30,105 per 10 g.

A strong bounce-back in the dollar index turned the bullion prices weak and kept it under pressure all through last week. The US dollar index initially fell to a low of 93.70 in the past week, but managed to sharply reverse higher thereafter. The index closed at 94.67. Surprisingly, contrary to our expectation, gold is not gaining safe-haven status from the on-going US-China trade war.

The US dollar index (94.67) has an immediate resistance at 95.15. A strong break and a decisive close above this hurdle will boost the momentum. Such a break will increase the likelihood of the index rallying to 96.5 and 97 over the short term. In that case, gold prices can fall further in the coming days.

The outlook for the index will turn negative if it declines below 94. Such a fall can drag the index lower to 93 in the near term.

Gold outlook

The global spot gold ($1,244 per ounce) is hovering above a crucial support level of $1,238. If the yellow metal manages to sustain above this support, a bounce-back move to $1,260 and $1,265 is possible in the near term. A strong break above $1,265 will ease the downside pressure and will take gold higher to $1,280 over the short term. As long as the prices sustain above $1,238, a range-bound move between $1,238 and $1,280 is possible.

However, the bias on the chart is negative. The 21-week moving average is on the verge of crossing below the 55-week moving average. This is a negative signal, indicating that the upside could be limited. It also increases the possibility of gold declining below the crucial support level of $1,238. Such a fall can drag the prices lower to $1,200.

On the domestic front, the near-term view for the MCX-Gold (₹30,105 per 10 g) futures contract is negative. The 21-week moving average resistance around ₹30,800 has been capping the upside for the contract over the past three consecutive weeks.

As long as the contract trades below ₹30,800, a fall to ₹29,600 or even ₹29,500 is possible in the coming days.

Silver outlook

The near-term view is negative. The global spot silver ($15.82 per ounce) has failed to breach $16.20 — a support-turned-resistance — in the past week.

Immediate resistance is in the $15.90-16 region which is likely to cap the upside in the near term.

Support is at $15.60, a break below which can drag silver lower to $15.1 or $15 in the coming days.

The downside pressure will ease, and the outlook will turn positive only if silver manages to rise past $16.20.

In the MCX-Silver futures contract (₹39,046 per kg), a dip to test the immediate support level of ₹38,800 is likely in the near term. A bounce from this support can take the contract higher to ₹40,000 again.

In such a scenario, the contract may remain range-bound between ₹38,800 and ₹40,000 for some time.

But if the MCX-Silver futures contract breaks below ₹38,800, the down-move can extend to ₹38,450. The contract needs to decisively break above ₹40,000 to turn the outlook positive.

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Published on July 15, 2018
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