Commodity Analysis

Gold tumbles as US Fed is set to tighten screws

Gurumurthy K | Updated on January 10, 2018 Published on September 24, 2017

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Though geo-political tensions may support, near-term view looks negative

Gold prices dropped sharply in the past week. The global spot gold price, which was already trading on a weak note, came under more pressure after the US Federal Reserve meet on Wednesday.

The Fed deciding to begin its balance sheet normalisation from October dragged the gold prices below the psychological $1,300 per ounce mark to a low of $1,288 on Thursday. The news of North Korea’s plan to test a nuclear bomb offered some support to the yellow metal on Friday and the prices bounced from the low to close the week at $1,297 per ounce, down 1.7 per cent for the week.

Silver, on the other hand, was beaten down much more than gold. The global spot silver prices slumped 3.4 per cent to close the week at $16.99 per ounce.

On the domestic front, both the gold and silver futures contract on the Multi Commodity Exchange (MCX) fell for the second consecutive week.

The MCX Gold futures contract has closed at ₹29,585 per 10 gm and was down about 1 per cent for the week. The MCX Silver futures contract closed the week at ₹39,737 per kg, down 2.7 per cent for the week.

Weak outlook

The fall in bullion prices over the last two weeks has turned the outlook negative. Further, with all major central banks — European Central Bank, Bank of England and the US Federal Reserve, set to tighten their policy, there is more pressure on gold and silver. However, the on-going political tensions between the US and North Korea may provide some support in the near-term and limit the downside in bullion prices.

Gold outlook

The global spot gold ($1,297 per ounce) has an immediate resistance at $1,302. If it manages to surpass this hurdle, the downside pressure may ease. A rise to $1,315 or $1,320 is possible then. Inability to break above $1,302 may keep gold under pressure. In such a scenario, there is a strong likelihood of the prices falling to $1,281 – the 50 per cent Fibonacci retracement support is likely in the short term.

MCX-Gold (₹29,585 per 10 gm) futures contract has a significant support in the ₹29,350-₹29,300 region. A fall below this support is less probable.

An upward reversal from this support can take the contract higher to ₹29,850 initially. Further break above ₹29,850 can test ₹30,100. On the other hand if MCX-Gold declines breaking below ₹29,350, it can fall to ₹28,975.

Silver outlook

The global spot silver ($16.99 per ounce) has a key support in $16.85-$16.80 zone. A strong break below $16.80 can drag the prices lower to $16.5 or even $16.25. But if silver manages to sustain above $16.8, a rise to $17.1 is likely. Further break above $17.1 will ease the downside pressure and take the prices higher to $17.35 and $17.60.

MCX-Silver (₹39,727 per kg) can fall to ₹38,950 if it breaks below the immediate support at ₹39,400. But, if it sustains above ₹39,400, a rise to test the 21-day moving average resistance at ₹40,415 is possible. A break above ₹39,400 can take the contract further higher to ₹40,850 or ₹41,250.

Published on September 24, 2017

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