Commodity Analysis

Increased risk appetite pulls down gold

Gurumurthy K | Updated on January 20, 2019 Published on January 20, 2019

But supports can limit the downside in the short term

Gold prices tumbled during last week’s final trading session, after trading in a narrow sideways range almost all through the week.

The global spot gold prices — which were stuck in between $1,290 and $1,295 per ounce for most part of the week — fell, breaking below $1,290 on Friday. The prices closed at $1,282 per ounce, down 0.6 per cent for the week. A strong dollar and reports indicating that the trade tensions between the US and China could ease going forward dragged down gold.

Silver, on the other hand, underperformed gold, and was beaten down badly. The global spot silver prices tumbled 1.7 per cent to close the week at $15.34 per ounce.

Easing trade tensions

Reports indicate that the US and China are making plans to resolve the ongoing trade war. China has offered to boost its imports from the US over the next six years in order to bring down the trade balance. This development has increased the risk appetite of traders and investors, thereby triggering a sharp rally in the equity markets and taking the sheen off gold.

Dollar snaps fall

After falling for four consecutive weeks, the US dollar index (96.34) made a sharp rally last week.

The index found strong support around 95 and moved up 0.7 per cent last week to make a decisive close above 96.

The immediate resistance is at 96.70, which is likely to be tested in the near term. A break above it can take the index further higher to 97.2. Such a rally in the dollar index can continue to keep gold prices subdued. On the other hand, if the dollar index reverses lower from 96.7, a dip to 95.9 or 95.8 is possible.

Gold outlook

The global spot gold ($1,282 per ounce) has a key trend line support near current levels at $1,280. A break below it can take gold lower to the next significant support level of $1,270. A further fall below $1,270 looks less probable at the moment.

A bounce from $1,270 can take the prices higher to $1,285 levels again. But if gold breaks below $1,270, a fall to $1,260 or even $1,250 thereafter cannot be ruled out.

Silver outlook

As expected, the global spot silver ($15.34 per ounce) fell last week to $15.30 per ounce. Support is in the $15.30-15.20 region. If silver manages to bounce from this support, an upmove to $15.55 or $15.60 is likely. A strong break and a decisive close above $15.60 will boost the momentum. Such a break will then increase the likelihood of the prices rallying towards $16.

On the other hand, if silver breaks below $15.20, a fall to $15 or $14.90 is possible. The region between $15 and $14.90 is a strong support zone. A fall below $14.90 looks unlikely at the moment.

Rupee comes to the rescue

On the domestic front, weakness in the rupee rescued the bullion prices. The rupee falling over a per cent last week helped limit the loss in the domestic gold and silver prices. The gold futures contract on the Multi Commodity Exchange (MCX) closed the week slightly higher by 0.5 per cent at ₹32,091 per 10 gm. The MCX-Silver futures contract fell marginally by 0.4 per cent to close the week at ₹39,198 per kg. The MCX-Gold (₹32,091 per 10 gm) has an immediate resistance at ₹32,150. As long as it trades below this hurdle, a dip to ₹31,900 or ₹31,850 cannot be ruled out in the near term. However, a fall below ₹31,850 looks less probable. A bounce back from this support and an eventual break above ₹32,150 will trigger a fresh rally to ₹32,500 and ₹32,600.

The MCX-Silver (₹39,198 per kg) has support at ₹38,900. A range-bound move between ₹38,900 and ₹39,800 can be seen for some time. A breakout on either side of ₹38,900 or ₹39,800 will then determine the direction of the next move. A break below ₹38,900 can drag the contract lower to ₹38,500.

On the other hand, a strong break above ₹39,800 will trigger a fresh rally to ₹40,500.

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Published on January 20, 2019
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