Gold struggles to gather momentum

Gurumurthy K | Updated on September 17, 2018

A strong break above $1,215 is needed to make the bias positive

Gold continues to hover around the psychological $1,200-per-ounce mark for the third consecutive week. The yellow metal rose to a high of $1,212 but failed to sustain higher. The US dollar index reversing higher from the week’s low of 94.35 dragged the gold price lower from $1,212 on the final trading session of the week. Gold closed the week at $1,194.85 per ounce, down 0.17 per cent.

Silver continues to underperform gold. The global spot silver prices made an intra-week high of $14.35 and reversed lower to close the week 0.78 per cent lower at $14.06 per ounce.

Dollar outlook

The US dollar index remained subdued for most part of the week. The index fell about a per cent to make a low of 94.36. However, it managed to reverse higher on Friday, recovering some of the loss, to close the week at 94.93. The near-term outlook is mixed for the index. Immediate support is at 94.7. If the index manages to sustain above this support, an upmove to 95.5 and 96 is likely in the near term. A strong break above 96 will boost the momentum and pave the way for the next targets of 96.5 and 97. Such a rally in the dollar index may drag gold prices lower.

The levels of 94.3 and 94.1 are crucial supports for the index. A strong break below 94.1 will bring renewed pressure on the index. It will turn the outlook bearish and increase the likelihood of the index tumbling to 93. This, in turn, may trigger a corrective rally in gold.

Gold outlook

Global spot gold ($1,194.85 per ounce) is finding strong resistance in the $1,212-1,215 region. Support is at $1,185. A range-bound move between $1,185 and $1,215 can be seen for some time. A breakout on either side of $1,185 or $1,215 will then determine the next move. A strong break below $1,185 will increase the selling pressure and drag the prices lower to $1,175 and $1,160 again. On the other hand, if gold decisively breaks above $1,215, a corrective rally to $1,230 and $1,240 is possible.

On the domestic front, the resistance at ₹30,700 is capping the upside in the MCX-Gold (₹30,436 per 10g) futures contract. However, there is a key support at ₹30,250, which is likely to limit the downside. A bounce from this support is likely to breach the ₹30,700 hurdle in the coming days. Such a break will pave the way for a fresh rally to ₹31,000 and ₹31,400, going forward. The indicators on the charts are giving bullish signals. The 21-day moving average has crossed over the 55-day moving average, and is on the verge of crossing over the 200-day moving average. This is a bullish signal indicating that the downside could be limited.

Short-term traders can go long on dips at ₹30,350 and ₹30,275. Stop-loss can be placed at ₹29,850 for the target of ₹31,300. Revise the stop-loss higher to ₹30,550 as soon as the contract moves up to ₹30,750.

Silver outlook

Silver continues to remain more bearish than gold. Global spot silver ($14 per ounce) has strong resistance in the $14.25-14.30 region. A break below the psychological support level of $14 can take silver prices lower to $13.7 and $13.5 in the coming days. A strong rise past $14.30 is needed to ease the downside pressure in silver. If silver manages to decisively breach $14.30, a corrective rally to $14.5 and $14.75 is possible on the back of short-covering. Such a rally, though less likely at the moment, could be swift and sharp.

The near-term outlook for MCX-Silver (₹36,993 per kg) is mixed. Resistance is at ₹37,550. A strong break above this level is needed for the contract to gain fresh momentum. Such a break can trigger a corrective rally to ₹38,200 and ₹38,500. But as long as the contract trades below ₹37,550, a fall to revisit ₹36,500 and ₹36,000 levels cannot be ruled out in the coming days.

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Published on September 16, 2018
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