Commodity Analysis

Gold to pause before resuming downtrend

Gurumurthy K | Updated on May 05, 2019 Published on May 05, 2019

Gold Bar Stairs

The dollar’s bullish outlook can cap the upside before pulling the yellow metal down again

It was yet another week of volatile movement for gold. After hovering between $1,280 and $1,290 per ounce in the initial part of the week, the global spot gold prices tumbled below $1,280 on Wednesday. The US Fed’s indication that rate cuts may not come by, triggered this fall.

Gold prices touched a low of $1,266. However, the pull-back in the dollar index on Friday helped gold recover.It ended the week at $1,279 per ounce, down 0.5 per cent for the week.

Dollar to bounce-back

The US dollar index (97.48) fell initially but, the lesser possibilities of further rate cut, helped the index reverse higher to 98.10. But data showing slow wage growth, coupled with a weak services sector expansion, dragged the dollar index on Friday. The dollar index fell from its high of 98.10 and closed the week at 97.48. The broader picture remains positive. A strong support is in the 97-96.7 region. As long as the index trades above this support zone, the possibility of breaching 98 and rallying to 99 is high. The upside in gold can be capped and the downtrend may resume.

Gold outlook

The global spot gold ($1,279 per ounce) price has been getting good support near $1,266. It can consolidate broadly between $1,266 and $1,292 in the near term. If it manages to breach $1,292, a rise to $1,300-$1,302 is possible. However, a further rally beyond $1,302 looks unlikely at the moment, as the broader picture continues to remain negative. As such, an eventual break below $1,266 will trigger a fresh fall to $1,260 and $1,255.

The gold futures contract on the Multi Commodity Exchange (MCX) was down 1.5 per cent last week. The contract has closed the week at ₹31,447 per 10gm. The Indian rupee strengthening against the dollar kept the loss wider on the domestic price. The MCX contract has to rise past ₹31,500 to get a breather. Such a move can take it higher to ₹32,000 again. But inability to breach ₹31,500 can lead to a fall to ₹31,000 in the coming days.

Silver recovers

Silver prices tumbled over 3 per cent intra-week. The global spot silver prices declined, breaking below the crucial support level of $14.75 after the US Fed meet. It tumbled to a low of $14.54. However, the prices managed to reverse sharply higher on Friday, following the fall in the dollar index. Silver has closed the week at $14.94 per ounce, down 0.9 per cent.

The MCX-Silver futures contract was down 3.6 per cent intra-week. It made a low of ₹36,171 per kg and bounced to close at ₹36,700 per kg, down 2.2 per cent for the week.

Silver outlook

Global spot silver ($14.94 per ounce) has an immediate support at $14.80. If it sustains above this , an upmove to $15.10 is possible again. But a fall below $14.80 will push to break $14.75 again. A break below $14.75 will see silver tumbling towards $14.50. A decisive weekly close below $14.75 will leave silver vulnerable to a fall towards $14.20 and $14.00 over the medium term.

The MCX-Silver (₹36,700 per kg) has an immediate resistance at ₹36,900. A strong break above it can ease the downside pressure and take it higher to ₹37,400 and ₹37,500. But inability to breach ₹36,900 can drag it lower to ₹36,500 and ₹36,200. In such a scenario, there is a strong likelihood of the contract tumbling towards ₹35,500 in the coming weeks.

The writer is a Chief Research Analyst at Kshitij Consultancy Services

Published on May 05, 2019

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