Gold stuck in a range

Gurumurthy K | Updated on January 09, 2018

But the overall bias remains bullish for it to breach $1,300 in the coming days

It was another volatile and a range-bound week for gold. The yellow metal fell sharply on the first trading day of the week to make a low of $1,274.6 per ounce. However, it recovered most of the loss thereafter and close at $1,288 per ounce, down 0.31 per cent for the week.

A weak US dollar helped gold prices to reverse higher The subdued recovery from the week’s low of $1,274 signals that there is lack of strong and fresh buying interest. However, the broader bias remains bullish for gold to breach the $1,300-$1,310 resistance region in the coming days. Also, the prolonged consolidation above $1,260 for more than two months leaves the possibility high for a swift and sharp move once the $1,310 hurdle is breached.

Silver slumped below $17 per ounce to make a low of $16.85. However, it managed to recover some of the loss and close the week 1.48 per cent lower at $17

On the domestic front, the gold and silver futures contract on the Multi Commodity Exchange (MCX) fell last week in tandem with the global prices. Indeed, the losses were more on the domestic market on the back of a strong rupee. The Indian rupee strengthened breaking above 65 against the dollar last week. This pulled the gold and silver futures contract on the MCX. The gold contract, which has closed at ₹29,380 per 10 gm ,was down 1 per cent and MCX-Silver closing at ₹39,241 per kg was down 1.9 per cent for the week.

Dollar weakens

The US dollar index fell for the third consecutive week. The index fell, breaking below the key 94-93.85 support zone last week and closed 0.94 per cent lower for the week at 92.78. The US dollar index has tumbled over 2 per cent over the last three weeks. A crucial support is near current levels at 92.75. If the index manages to bounce from there, a relief rally to 93.50 or 93.85 is likely. A range-bound move between 92.75 and 93.85 is likely in such a scenario. However, the possibility of the index breaking above 93.85 or 94 again is less at the moment. So, as long as the index trades below 94, the outlook will continue to remain negative for a fall to 92 or even 91.5 in the coming weeks. This suggests that the downside is limited for gold. A fall to 92 or 91.5 in the dollar index may aid the yellow metal to breach $1,300 and surge in the coming weeks.

Gold outlook

The bounce-back move from the low of $1,274 per ounce last week lacks strength. The global spot gold ($1,288 per ounce) may remain range-bound between $1,275 and $1,295 for sometime. Though a dip in the near term to test $1,280 or $1,275 again cannot be ruled out, the overall bias is bullish to see gold breaking above $1,295 eventually. Such a break can take the prices higher to $1,300 initially. A break above $1,300 can take the price higher to $1,310 - a crucial resistance. A strong rise past this hurdle will clear the way for gold to revisit $1,350 or even higher levels.

The near-term view will turn negative only if gold declines below $1,275. The next targets are $1,265 and $1,260.

On the domestic front, the MCX-Gold (₹29,380 per 10 gm) has cluster of supports between ₹29,200 and ₹29,000. A dip to test ₹29,200 or even lower levels is likely in the near term. However, the outlook will turn bearish only if the contract breaks below ₹29,000 decisively, which looks less probable at the moment. Resistance is at ₹29,750. A strong break above this hurdle can take the contract higher to ₹29,900 or ₹30,000 initially. Further break above ₹30,000 will clear the way for the next targets of ₹30,200 and ₹30,500 over the medium-term.

Silver outlook

The global spot silver ($17 per ounce) has an immediate support at $16.90. A break below it can drag the prices lower to $16.75 or $16.60. On the other hand, if silver sustains above $16.90, it can test the resistance in the $17.25-$17.30 region. A strong break above $17.30 is needed for silver to gain momentum and target $17.60 thereafter.

The MCX-Silver (₹39,241 per kg) hovers above a key support level of ₹39,200. A break below it can take the contract lower to ₹38,635.

On the other hand, if the contract manages to sustain above ₹39,200 and breaks above ₹39,600 decisively, it can rally to ₹39,900 or even ₹40,200 in the coming days.

Published on November 26, 2017

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