Commodity Analysis

Gold seeks direction

Gurumurthy K | Updated on December 02, 2018 Published on December 02, 2018

But bias remains positive for an up-move to $1,250 and $1,260 in the short term

Gold is currently managing to sustain above the psychological level of $1,200 per ounce. The global spot gold prices have been broadly range-bound between $1,200 and $1,245 over the past few weeks. Within this range, the yellow metal dipped in the initial part of last week to make a low of $1,211. However, the prices reversed from the low, recovering most of the loss, and closed marginally lower for the week at $1,220 per ounce.

Silver remained subdued last week and continued to underperform gold. The global spot silver prices fell 0.6 per cent in the past week and closed at $14.20 per ounce.

Key events like the Organization of the Petroleum Exporting Countries (OPEC) meeting on Thursday and the US non-farm payroll data release on Friday may keep the volatility high this week. As such, the movement in the US dollar may play a key role in impacting the gold prices.

On the domestic front, the strength in the rupee is retaining the pressure on the gold and silver futures contract on the Multi Commodity Exchange (MCX). The rupee strengthened, breaking above 70 against the dollar, and was up 1.5 per cent last week.

The strong rupee pushed the MCX-Gold futures contract low for the fifth consecutive week. The MCX-Gold was down 0.84 per cent last week. The contract has tumbled over 5 per cent over the past five weeks. It closed at ₹30,240 per 10 gm.

The MCX-Silver futures contract tumbled, breaking below the key support level of ₹36,000 per kg last week. The contract was down 2.5 per cent last week and closed at ₹35,147 per kg.

Dollar outlook

The US dollar index (97.27) was range-bound between 96.6 and 97.5 in the past week. The near-term outlook is mixed. The index has been sustaining above 96 over the past month. However, it is not gaining strength to move sharply higher. A key resistance is near the current levels at 97.5. A strong break and a decisive close above this hurdle is needed to boost the momentum. Such a break will take the index initially higher to 98.

A further break above 98 will then increase the likelihood of the index targeting 98.8 and 99 over the short term. Such an up-move in the dollar index may cap the upside in gold.

On the other hand, if the index fails to breach 97.5, it can continue to oscillate between 96 and 97.5 for some more time.

Gold outlook

The global spot gold ($1,220 per ounce) closed on a mixed note last week. However, the bias remains positive. The key support is at $1,210 which is holding well now. The next significant support is at $1,200. As long as the yellow metal remains above $1,200, there is a strong likelihood of the prices moving higher in the coming weeks.

Resistance is at $1,232. A strong break above it can take the prices higher to $1,240 or even $1,250 in the coming days. Such a break will also increase the possibility of gold testing $1,260 levels over the short term.

On the domestic front, the MCX-Gold (₹30,240 per 10 gm) has declined below the key support level of ₹30,300. The downtrend is intact. The region between ₹30,450 and ₹30,600 will now be a strong resistance that can cap the upside in the near term.

A fall to ₹29,800 is likely in the coming days. A bounce from ₹29,800 can take the contract higher to ₹30,300 and ₹30,500. But a break below ₹29,800 can drag the MCX-Gold futures contract to ₹29,500.

The global spot silver ($14.20 per ounce) may dip to test the psychological support level of $14 in the near term.

Silver outlook

A strong break below $14 can drag silver lower to $13.85 and $13.7 thereafter. But if silver manages to bounce from $14, an up-move to $14.5 is possible again.

Silver has been broadly range-bound between $14 and $15 over the past several weeks. A breakout on either side of $14 or $15 will give a clear cue on the next leg of the move for silver.

The MCX-Silver (₹35,147 per kg) is under renewed pressure. The sharp fall last week triggered the stop-loss on the long positions we had recommended last week. The region between ₹35,850 and ₹36,000 will now act as a strong resistance. An intermediate bounce to this resistance zone may bring fresh sellers into the market.

As long as the MCX-Silver futures contract trades below ₹36,000, there is a strong likelihood of it tumbling towards ₹33,000 in the coming weeks.

Trading strategy

Medium-term traders with high risk appetite can go short at current levels and also accumulate at ₹35,500 and ₹35,800. Stop-loss can be placed at ₹36,400 for the target of ₹33,300. Revise the stop-loss lower to ₹34,950 as soon as the contract moves down to ₹34,300.

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Published on December 02, 2018
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