Gold’s upmove pauses as dollar recovers

Gurumurthy K | Updated on December 16, 2018 Published on December 16, 2018

But the outlook for the yellow metal continues to remain bullish

Gold took a breather last week after having risen over 2 per cent in the week before. Global spot gold prices retreated last week from their five-month high of $1,251 per ounce.

The yellow metal fell to a low of $1,233 and bounced back slightly to close at $1,239 per ounce, down 0.8 per cent for the week.

Silver prices, on the other hand, managed to move higher by over a per cent intra-week.

But a sharp upmove in the US dollar played spoilsport on Friday. Global spot silver prices reversed sharply low from their high of $14.81 per ounce, giving back all the gains.

The prices closed at $14.58 per ounce, down 0.3 per cent for the week.

The US dollar index surged 1.4 per cent intra-week from its low of 96.35, to make a high of 97.71, and kept the bullion prices subdued this past week. Weak economic data releases from China and the Euro zone, coupled with the uncertainty prevailing over the Brexit deal, helped the US dollar move higher last week.

On the domestic front, weakness in the rupee limited the loss in the gold and silver futures contract on the Multi Commodity Exchange (MCX). The rupee weakened by 1.5 per cent and revisited the levels of 72 against the dollar, last week. This helped in limiting the pace of the fall in the domestic prices.

The MCX-Gold futures contract closed the week at ₹31,553 per 10 gm and was down 0.13 per cent. The MCX-Silver, on the other hand, outperformed gold by inching 0.22 per cent higher to close the week at ₹38,054 per kg.

Keep an eye on the Fed

The dollar may continue to impact bullion prices in the near term. The movement in the US dollar this week will largely be influenced by the outcome of the US Federal Reserve meeting on Wednesday. What the market will be keenly looking into is the Fed’s outlook for 2019.

If the Fed hints on slowing down the pace of rate hikes next year, it will be a negative for the dollar index. This will drag the dollar index lower to 96 levels again. In such a scenario, the dollar index will be under pressure to decline below 96 and fall towards 95 and 94 in the coming weeks. As a result, gold will gain sheen and the prices will move up sharply.

Dollar outlook

The US dollar index (97.44) has been broadly range-bound between 95.7 and 97.7 over the past several weeks. Within this range, the index bounced back sharply from its low of 96.35 and made a high of 97.71 before closing the week up by 0.96 per cent at 97.44.

A crucial resistance is near the current levels, in the 97.85-97.90 region. A strong break and a decisive close above 97.90 will boost the momentum. Such a break will increase the likelihood of the index targeting 99 or even 100 in the coming weeks. But, the inability to breach 97.9 can pull the index lower and keep it range-bound for some more time.

Gold outlook

The pull-back move in the past week seems to be lacking strength. The global spot gold ($1,239 per ounce) has an immediate support at $1,231. Then, a cluster of supports is poised between $1,223 and $1,215. A dip to test $1,231 cannot be ruled out in the near term, but the downside is likely to be limited.

A bounce from either $1,231 or from the $1,223-1,215 zone can take gold higher to $1,250 again. A strong break and a decisive close above $1,250 will boost the bullish momentum. Such a break will take the yellow metal prices higher to $1,265 and $1,270 in the coming weeks.

On the domestic front, the MCX-Gold (₹31,533 per 10 gm) came off last week after testing a key resistance level of ₹32,150. The immediate support is at ₹31,250. Though a near-term dip to test this support cannot be ruled out, a break below ₹31,250 looks less probable. An upward reversal from ₹31,250 can take the contract higher to ₹32,150 or ₹32,200 over the short term. A further break above ₹32,200 will then pave way for the next target of ₹32,500.

Silver outlook

Silver continues to be in a broad $14-15-per-ounce sideways range. The global spot silver ($14.58 per ounce) has a support at $14.40. As long as silver remains above this support, there is a strong likelihood of the prices testing $14.80 levels again. A break above $14.80 will pave the way for the next targets of $14.9 and $15 thereafter.

MCX-Silver (₹38,054 per kg), on the other hand, came off slightly from its high of ₹38,660. The support is at ₹37,645, which is likely to limit the downside in the near term. A bounce from this support can take the contract initially higher to ₹38,650. A break above ₹38,650 will then increase the likelihood of the contract extending its rally to ₹39,150 and ₹39,300 thereafter.

The contract will come under pressure if it declines below ₹37,645. The subsequent targets are ₹37,150 and ₹36,900.

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Published on December 16, 2018
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