Commodity Analysis

Near-term outlook positive for gold

Gurumurthy K | Updated on September 07, 2018 Published on September 02, 2018

But the price action on the chart makes the bias positive for a relief rally to $1,230

Gold prices remained subdued last week. Global spot gold prices began the week on a positive note and made a high of $1,214 per ounce. However, it failed to sustain higher and fell back to a low of $1,196, before closing the week at $1,203.6 per ounce. The price action last week indicates that gold is lacking fresh buyers to take it decisively higher.

At the same time, the yellow metal managing to sustain above $1,200 almost all through the week also indicates the absence of strong sellers to drag gold decisively below the psychological level of $1,200. This leaves the near-term outlook mixed for gold. As such, the price action in the coming days will need a close watch to get a cue on the direction of the next move.

Trade war

The next wave of trade war between the US and China is all set to begin. The US is gearing up to impose tariffs on Chinese goods worth $200 billion this week. A retaliation from China is likely to follow. Gold has failed to gain glitter ever since the US triggered the trade war in March by levying import duty on aluminium and steel. Will this trend change? Will gold manage to gain safe-haven status from this new wave of trade war? We have to wait and see.

Dollar getting support

The US dollar index bounced higher on Friday after hovering around 94.5 for most part of the week. The index made a low of 94.43 and moved up , to close the week on a flat note at 95.14. The level of 94.5 has provided strong support and limited the downside for the index last week. As long as the index sustains above 95, an upmove to 95.8 or 96 is likely in the near term. This can continue to keep gold prices subdued. A strong break above 96 will then increase the likelihood of the index extending its upmove to 97.

The index will come under pressure only if it decisively breaks below 94.5. It can then fall to 94 or 93.85 initially. A further break below 93.85 will increase the downside pressure and drag the index to 93 thereafter.

The US non-farm payroll and the unemployment data release is due on Friday. The outcome of this data will be key to setting the next trend in the dollar index.

Gold outlook

The global spot gold ($1,203.6 per ounce) has a cluster of supports between $1,200 and $1,190. As long as it sustains above this support zone, there is a strong likelihood of seeing a relief rally to $1,225 or $1,230 in the near term.

The bias will turn negative only if the yellow metal breaks below $1,190. The next targets are $1,185 and $1,180. The outlook will turn bearish if gold declines below $1,180. In such a scenario, a revisit of $1,170 and $1,160 levels is possible in the short term.

Silver tumbles

Silver under-performed compared with gold last week. Global spot silver prices tested the psychological $15-per-ounce mark, but failed to breach it decisively. The prices fell sharply, giving back all the gains, and closed 1.9 per cent lower for the week at $14.54 per ounce.

A key support is at $14.4. But silver looks vulnerable for a fall below $14.4 and may target $14 or even lower levels. Silver will get a breather only if it breaks above $15 decisively, which looks less probable at the moment.

Rupee aids domestic prices

The rupee falling to a new record low of 71 against the US dollar last week helped the domestic bullion prices sustain higher compared with the global prices. The gold futures contract on the Multi Commodity Exchange (MCX) surged to an intra-week high of ₹30,359 per 10 g, but reversed lower, giving back some of the gains, and closed at ₹30,129 per 10 g, up 0.76 per cent.

Th weak rupee also helped limit the loss in the MCX-Silver futures contract compared with the global prices last week. The MCX-Silver contract closed the week at ₹36,701 per kg, down 0.82 per cent. MCX-Gold (₹30,129) has strong support at ₹29,900. As long as the contract remains above this support, the outlook will be positive. An intermediate resistance is at ₹30,275. A break above it can take the contract higher to ₹30,600. A strong break and a decisive close above ₹30,600 will then pave the way for a fresh rally to ₹31,000 or even ₹31,500 thereafter.

The outlook for MCX-Silver (₹36,701 per kg) is negative. Immediate support is at ₹36,500. A strong break below it can drag the contract lower to ₹36,000. But the outlook will turn positive only if the contract decisively breaks above the key resistance at ₹37,500. Such a break will then increase the likelihood of the contract targeting ₹38,000 and ₹38,500 thereafter.

Published on September 02, 2018

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