Derivatives

Is gold regaining bullishness?

Akhil Nallamuthu BL Research Bureau | Updated on July 10, 2021

Traders can remain bullish until the gold contract remains above the price level of ₹47,325

Investors seem to have taken advantage of weak gold prices in June as gold ETFs (Exchange Traded Funds) saw positive flows. As per the latest World Gold Council (WGC) data, globally gold ETFs saw a net inflow of nearly $200 million in June. Even though the amount is small compared to $3.4 billion in May, ETFs have seen inflows for second consecutive month, and this is despite the hawkish Fed (US Federal Reserves) outlook which can be a drag on the bullion.

In India, net inflows to gold ETFs in the first half of the year were at ₹3,106.4 crore which is 12 per cent lower compared to ₹3,530.7 crore in the corresponding period of last year according to AMFI (Association of Mutual Funds in India) data. However, the net inflows in June rose by nearly 25 per cent month-on-month to ₹359.7 crore after dropping to a ₹287.9 crore in May. Investors continued to buy even as the price remained subdued and if this trend continues investment demand can provide some cushion to bullion prices.

On the trading front, in dollar terms, gold gained 1.2 per cent whereas silver lost nearly 1.5 per cent to close the week at $1,808 and at $26.08 per ounce, respectively. A similar trend was observed in domestic market as gold futures on the Multi Commodity Exchange (MCX) ended the week at ₹47,923 (per 10 grams), up by 1.4 per cent and silver futures on the MCX closed the week at ₹69,297 (per Kg), down by 1.3 per cent.

MCX-Gold (₹47,923)

Gold futures (August expiry) appeared positive last week as the contract broke out of the range of resistance at ₹47,325 and moved out of the range of ₹46,650 and ₹47,325. This strengthened the case for the bulls and the contract marked an intraweek high of ₹48,290, in line with our expectation. However, it could not move beyond the 50-day moving average (DMA) at around ₹48,170 and corrected a bit to close the week at ₹47,923. The price closing above ₹47,325 and above the 21-DMA – now at ₹47,430, are positive signs.

While the relative strength index (RSI) is hovering in the neutral region, the moving average convergence divergence indicator on the daily chart has turned its trajectory upward. Moreover, the number of outstanding open interest of all active futures contract rose to 15,015 contracts as on Friday compared to 14,806 contracts a week ago.

Given the above factors, one can remain bullish until the contract remains above the price level of ₹47,325. Therefore, traders can buy gold futures with stop-loss at ₹47,000. On the upside, the nearest hurdles are at ₹48,170 and ₹48,600. A breach of ₹48,600 can intensify the rally towards ₹50,000. From the current levels, the supports can be seen at ₹47,325 and ₹47,000. Subsequent support is at ₹46,330.

MCX-Silver (₹69,297)

The September futures contract of silver, which broke out of key resistance at ₹70,000 in the week before, invalidated the breakout as it declined and closed below ₹70,000 on Friday. That is, the contract reversed after registering a high of ₹70,960 on Tuesday before overturning the trend. The 21-DMA at around ₹70,600 acted as resistance on the back of which sellers gained momentum and pulled down the contract.

The contract has fallen back into the price range of ₹67,700 and ₹70,000 and thus, the next leg of trend will remain unclear as long as the price remains within this range. But there is a negative bias as the RSI and the MACD, although flat, remain in their respective bearish zones.

There is also a considerable increase in outstanding open interest (increasing to 11,116 on Friday from 9,689 contract by the end of the preceding week) along with the drop in price, a bearish signal. However, ₹67,700 is a strong base that can prevent bears from gaining traction.

Hence, traders can wait for either of ₹67,700 or ₹70,000 to be breached before taking fresh positions. A decisive breakout of ₹70,000 can lift the contract to 71,500. Above that level, it can touch ₹72,500. On the other hand, if the futures break below ₹67,700, it can drop to ₹65,000.

SGB – Series IV

Series IV of the Sovereign Gold Bond (SGB) will be open to subscription with an issue price of ₹4,807/gram between July 12 and 16 and the same will be issued on July 20. The tenor is eight years and so, investors planning to make long-term investments can consider subscribing. As the risks and costs of storage are eliminated in SGBs when compared to holding gold in physical form, this can be preferred choice for the investors.

Besides, one can also earn 2.5 per cent interest per annum, which will be credited semi-annually. These bonds are issued in the denominations of one gram and retail investors can subscribe up to 4 kgs per year. SGBs can be bought online or in branches of banks and designated post offices. These bonds are tradeable if held in demat form.

Published on July 10, 2021

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