Gold stays range-bound amid volatility

Gurumurthy K | Updated on January 09, 2018 Published on December 03, 2017

But a cluster of supports maintain a bullish bias for a fresh rally in the yellow metal

Gold continues to remain range-bound and volatile within a range. The yellow metal began the week on a positive note and broke above $1,290 per ounce to record a high of $1,299 on Monday.

But a couple of strong economic data releases from the US took the sheen off from gold and dragged the prices sharply to a low of $1,270 by Thursday. Gold, however, managed to bounce from this low to close at $1,280 per ounce, down 0.6 per cent for the week.

Silver, for the second consecutive week, was beaten down much harder than gold. Unlike gold, the global spot silver traded weak all through the week. It made a high of $17.19 per ounce on Monday and tumbled from there. Silver made a low of $16.24 before closing at $16.44, down 3.6 per cent for the week.

On the domestic front, the gold and silver futures contract on the Multi Commodity Exchange (MCX) was down for the second consecutive week. The MCX-Gold futures contract closed the week at ₹29,209 per 10 gm and was marginally down by 0.58 per cent.

But the MCX-Silver futures contract was knocked down badly in tandem with the global prices. The contract tumbled 4.2 per cent and closed at ₹37,582 per kg last week.

The US GDP and the Personal Consumption Expenditure (PCE) data were the major triggers last week that pulled gold price lower. The preliminary estimates showed that the US grew at 3.3 per cent in the third quarter. The growth numbers were revised higher from the initial advanced estimate of 3 per cent.

The strong growth number was the first trigger to reverse the gold prices lower from around $1,290 levels. It was followed by the Core PCE, a key determinant for the Federal Reserve to decide on the interest rates, that rose to 1.4 per cent. Both sets of data increased the speculation that the Fed could turn aggressive in hiking the interest rates. As a result, bullion prices reversed lower sharply. US jobs data release on Friday will be another key factor that could influence gold prices.

But interestingly, though the US data release pulled the gold price lower, it did not impact the dollar much and has failed to push the greenback higher. The dollar index tested 93.5 and has come off from there to close at 92.88, up 0.11 per cent for the week.

Dollar outlook

On the charts, the dollar index continues to remain weak. Inability to break above 93.5 last week indicates lack of fresh buying interest in the market for the dollar. Immediate support for the index is at 92.5. A break below it can take it lower to 92 or even 91.5 thereafter. Such a fall will signal that the overall downtrend that has been in place since the beginning of this year is intact.

It will also confirm the beginning of a fresh leg of downmove which is likely to target 90 from a medium-term perspective. A strong break below 91.5 will pave way for this medium-term fall.

Gold outlook

The global spot gold ($1,280 per ounce) is stuck inside the $1,270-$1,300 sideways range over the last three weeks. The bounce after testing $1,270 on Thursday signals that gold is likely to sustain above it in the coming days. Also, the cluster of supports between $1,265 and $1,260 can limit the downside in the yellow metal even if it breaks below $1,270 in the coming days.

As long as gold trades above $1,270, a rise to test $1,290 is likely. A break above $1,290 can take it further higher to $1,300. Inability to break above $1,300 can pull the prices lower and keep it range-bound between $1,270 and $1,300 for some more time. But if gold manages to breach $1,300, it can test the crucial resistance level of $1,310.

A strong break and a decisive close above $1,310 is needed for gold to gain fresh momentum. Such a break will increase the likelihood of gold targeting $1,350 or even higher levels over the medium term.

On the domestic front, the MCX-Gold (29,209 per 10 gm) has crucial supports at ₹29,000 and ₹28,800. Though a test of these supports in the near term cannot be ruled out, the outlook will turn negative only if the contract breaks below ₹28,800. As long as it sustains above ₹28,800, a bounce back move to ₹29,500 and ₹29,750 levels is possible again. A strong break above ₹29,750 will then pave the way for the next targets of ₹30,000 and ₹30,100.

Traders with high risk appetite can buy on dips at ₹29,050 and ₹28,850. Stop-loss can be placed at ₹28,700 for the target of ₹29,750. Revise the stop-loss higher to ₹29,150 as soon as the contract moves up to ₹29,350.

Silver outlook

The global spot silver ($16.44 per ounce) looks much weaker than gold. If it manages to bounce above $16.6 from current levels, the downside pressure will ease. A rise to $16.85 and $17.2 is possible in such a scenario. But, inability to break $16.60 from current levels can keep it under pressure for a fall to $16 or even $15.5 in the coming weeks.

MCX-Silver (₹37,582 per kg) has declined below the key support level of $38,000. The region between ₹38,000 and ₹38,500 may now act as a strong resistance for the contract. As long as the contract trades below ₹38,000, a fall to ₹37,000 or even lower levels cannot be ruled out in the coming days.

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Published on December 03, 2017
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