Near-term outlook negative for gold

Gurumurthy K | Updated on March 18, 2018

But crucial support at $1,300 can limit the downside

Gold prices, which started the week on a positive note, failed to sustain the up move. The yellow metal made a high of $1,330 per ounce on Tuesday and subsequently reversed lower. Gold touched a low of $1,309.7 before closing the week 0.7 per cent lower at $1,314 per ounce. Silver, after hovering around $16.5 per ounce in the initial part of the week, fell sharply to a low of $16.22. It bounced back and has closed at $16.34 per ounce, down 1.5 per cent for the week.

On the domestic front, both the gold and silver futures contract on the Multi Commodity Exchange (MCX) moved in tandem with global prices. MCX-gold was down 0.5 per cent for the week and closed at ₹30,224 per 10 kg.

The fall in the MCX-Silver futures contract was sharper. MCX-Silver closed at ₹38,358 per kg, down 1.5 per cent for the week.

Fed meeting awaited

The dollar index remained stable last week. However, expectation of a rate hike by the US Federal Reserve this week has kept bullion prices under pressure. The upcoming Fed meet is an important event eagerly awaited by the global markets as this is going to be the first for the new Chairman, Jerome Powell.

The press conference after the policy announcement will be interesting to watch and may lead to wild swings in the global markets.

Bullish signs for dollar

The dollar index (90.23) remained steady in the past week. However, the price action on the chart leaves the bias bullish for the index to breach the resistance at 90.55 and rally towards 91 in the coming days.

A further break above 91 will then increase the likelihood of the index targeting 91.7 and 92 thereafter. Such a rally in the dollar index could keep gold prices under pressure in the short term.

Immediate support is at 89.70. The near-term view will turn negative if the dollar index declines below 89.7. The next targets are 89.5 and 89.

Gold outlook

The near-term view is negative for gold. The global spot gold ($1,313 per ounce) is likely to fall and test the crucial $1,305-$1,300 support zone. A further fall below $1,300 is less likely. But if it does, gold can extend its downmove toward $1,290 in the short term.

An upward reversal from $1,300 will ease the downside pressure. In such a scenario, prices can rise towards $1,325 and $1,330 again. It will also keep the broader $1,300-$1,370 sideways range intact. Gold has been stuck in this range since the beginning of this year.

For the MCX-Gold (₹30,224 per 10 gm) futures contract, the 21-day moving average resistance at ₹30,444 is capping the upside. A dip to test the crucial support levels of ₹30,100 and ₹30,000 looks likely in the near term.

A strong break below ₹30,000 will increase the downside pressure and drag the contract lower to ₹29,650 or even ₹29,475 on the back of profit booking.

But the price action on the chart suggests that the possibility is high of the contract reversing higher from the ₹30,100-₹30,000 support zone. Such a reversal will keep the uptrend that has been in place since December intact and will take the contract higher to ₹30,900 in the coming weeks.

Traders with a high risk appetite and a medium-term perspective can go long on dips at ₹30,120 and accumulate at ₹30,050. Stop-loss can be placed at ₹29,750 for the target of ₹30,900. Revise the stop-loss higher to ₹30,250 as soon as the contract moves up to ₹30,600.

Silver outlook

Global spot silver ($16.24 per ounce) has an immediate support at $16.10. A strong break below it will increase the selling pressure. Such a break will then increase the likelihood of silver prices tumbling below $16, targeting $15.55 in the short term.

The MCX-Silver (₹38,358 per kg) futures contract is also looking weak. The contract is reversing lower after failing in its various attempts to breach ₹39,000 over the last two weeks. The contract can break below the support at ₹38,000 and fall to ₹37,700 and ₹37,500 in the coming days. The level of ₹37,500 is a crucial support for MCX-Silver. If the contract manages to bounce from this support, an upmove to ₹38,500 and ₹39,000 can be seen again.

But a strong break below ₹37,500 will bring renewed downside pressure and will increase the possibility of the contract tumbling towards ₹36,500 over the medium term.

Published on March 18, 2018

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