Gold shines as dollar gets a knock

GURUMURTHY K | Updated on January 29, 2018

gold bars

But a corrective fall is likely as the resistance at $1,370 may halt the rally

Gold continues to glitter as the US dollar is knocked down for the sixth consecutive week. Global spot gold prices surged to a high of $1,366 per ounce on Thursday. The US dollar index dropped below the key psychological level of 90. Though the US President Donald Trump’s comments that he wanted a strong dollar gave a breather for the greenback, the impact was short-lived. Gold prices came-off from the week’s high, giving back some of its gains after Trump’s comment and closed at $1,349 per ounce, up 1.3 per cent for the week.

Silver clawed back sharply after an initial fall last week. The global spot silver prices made a low of $16.75 per ounce and bounced back sharply to make a high of $17.7 per ounce. It closed the week at at $17.40 per ounce, up 2.3 per cent.

On the domestic front, both the gold and silver futures contract on the Multi Commodity Exchange (MCX) have closed the week with strong gains.

The MCX futures contracts have not factored in the price fall witnessed in the global prices after the US President’s comment on dollar as the Indian commodity markets were closed on Thursday and also the domestic markets were closed on Friday on account of public holiday. So there is a high probability for the gold and silver futures contract to open gap-down today (Monday).

The MCX-gold futures contract made a high of ₹30,464 per 10 gm and closed at ₹30,361 per 10 gm, up 2 per cent. Silver futures contract on the other hand made a high of ₹40,180 per kg before closing the week 2.5 per cent higher at ₹39,960 per kg.

Dollar outlook

The downtrend in the dollar index has strengthened after the strong break below 89.8 last week. The region between 89.8 and 90 will now be a strong short-term resistance. There is a strong likelihood of the index falling to 87.9 . If the index manages to bounce from this support, a relief rally to 90 and a range bound move between 89 and 90 is possible for some time. Since the dollar index has been falling continuously, the support at 87.9 is more likely to hold on its first test. As such, rally in gold could lose momentum and prices can continue to remain below $1,370 for some more time in the short-term. But if the dollar index breaks below 87.9 decisively eventually, a fall to 86 or even lower levels cannot be ruled out thereafter.

Gold outlook

The global spot gold ($1,349 per ounce) can dip to test its support at $1,340 per ounce in the initial part of the week. A bounce from this support can take the prices higher to $1,360 or $1,370. A range-bound move between $1,340 and $1,370 can be seen for sometime if gold manages to sustain above $1,340. But if the yellow metal declines below $1,340, it can fall further to $1,330 or $1,325 thereafter. A strong break and a decisive close above $1,370 is needed for gold to gain fresh momentum. Such a break can take the prices higher to $1,390 and $1,400 thereafter.

The MCX-Gold (₹30,361 per 10 gm) can open with a gap-down to factor-in the global price fall over the weekend. However, the support at ₹29,900 can limit the downside and can keep the uptrend intact. An eventual bounce from this support will see the overall uptrend resuming to target ₹30,800 and ₹31,000 in the coming weeks.

Medium-term traders can go long on dips at ₹30,100 and accumulate at ₹29,950. Stop-loss can be placed at ₹29,650 for the target of ₹31,000. Revise the stop-loss higher to ₹30,250 as soon as the contract moves up to ₹30,600.

Silver outlook

The support at $16.75 has held well for the global spot silver ($17.4 per ounce) last week. Resistance is at $17.5. Inability to break above this hurdle can keep silver range boundbetween $16.75 and $17.5 for some time. A strong break above $17.5 is needed for Silver to gain fresh momentum and target $18 or $18.5 thereafter.

On the domestic front, the MCX-Silver (₹39,960 per kg) contract has a key support at ₹39,500 which is likely to limit the downside in the near-term. As long as the contract remains above this support, the outlook will remain bullish for the target of ₹41,000. But if the contract breaks below ₹39,500, then an intermediate dip to ₹39,000 or ₹38,800 is possible in the near term.

Published on January 28, 2018

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