Commodity Analysis

Rally in gold may pause

Gurumurthy K | Updated on June 30, 2019 Published on June 30, 2019

Prices may consolidate/correct before moving up again

It was a volatile week for gold. The global spot gold prices surged to a high of $1,439 per ounce and fell sharply, giving up most of its gains. The yellow metal closed the week at $1,409.55 per ounce, up 0.7 per cent for the week.

Silver underperformed gold last week. The global spot silver reversed lower after making a high of $15.51 and closed at $15.31 per ounce, down 0.2 per cent for the week.

On the domestic front, the Indian rupee strengthening against the US dollar last week weighed on the prices. The gold futures contract on the Multi Commodity Exchange (MCX) began the week on a strong note and surged over 2 per cent. However, it failed to sustain higher and fell, giving back all the gains. The MCX-Gold closed the week on a flat note at ₹34,206 per 10 gm. The MCX-Silver, on the other hand, remained subdued all through the week. The contract tumbled 1.3 per cent and closed the week at ₹37,452 per kg.

US-China trade talks

The US and Chinese Presidents on Saturday agreed to continue the trade negotiation talks. This could increase the optimism in the market and push the equities higher. In turn, gold prices can remain subdued or even fall on profit-booking, if the equities post a strong rally.

Dollar looks vulnerable

The US dollar index (96.13) hovered around 96 in a narrow range all through last week. Though the weekly candles reflect indecisiveness in the market, the daily chart is weak. It leaves the index vulnerable to a fall towards 95.6 and 95.5 in the coming days. A strong break below 95.80 can trigger this fall and aid gold to sustain higher.

Gold outlook

The global spot gold ($1,409.55 per ounce) has an immediate support at $1,400. If it manages to sustain above this support, a bounce to $1,425 is possible. In such a scenario, a sideways consolidation between $1,400 and $1,425 can be seen for some time. The bias will continue to remain positive. An eventual break above $1,425 will then pave way for the next target of $1,450. On the other hand, if gold declines below $1,400, a fall to $1,380 or even $1,370 is possible on profit-booking. A further fall below $1,370 looks less probable at the moment as fresh buyers are likely to emerge at lower levels.

The MCX-Gold (₹34,206 per 10 gm) is facing resistance near ₹35,000. The near-term outlook is mixed. It can remain range-bound between ₹34,000 and ₹35,000 for some time. The bias is slightly negative within this range for the contract to break ₹34,000 and fall to ₹33,500. A further fall below ₹33,500 looks unlikely at the moment.

Silver outlook

The global spot silver ($15.31 per ounce) is not gaining strength to decisively breach $15.50. The near-term outlook is mixed. Silver can remain range-bound between $15 and $15.5 for some time. A breakout on either side of $15 or $15.5 will determine the direction of the next move. A break below $15, though less likely, can take silver lower to $14.75. On the other hand, a strong break above $15.50 will boost the momentum and take silver initially higher to $15.70-$15.75. A further break above $15.75 will then increase the likelihood of the contract targeting $16 and $16.25 on the upside.

The MCX-Silver (₹37,452 per kg) has a key support near ₹37,250. A bounce from this support can take the contract higher to ₹38,000 and ₹38,500 in the short term. Broadly, the MCX-Silver futures contract can trade sideways between ₹37,250 and ₹38,500 for some time. A break below ₹37,250, though less probable, can drag the contract lower to 36,700. The bias remains positive. The contract is likely to target ₹39,000-39,500 over the medium term.

The writer is Chief Research Analyst at Kshitij Consultancy Services

Published on June 30, 2019

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