Commodity Analysis

Short-term outlook is bearish for gold

Gurumurthy K | Updated on February 11, 2018 Published on February 11, 2018

A series of supports can limit the downside and the pace of fall

Gold extended its fall last week, along expected lines. The global spot gold prices fell for the second consecutive week. The prices spiked to a high of $1,346 per ounce on Tuesday, but failed to sustain higher. Gold prices reversed sharply lower from the high and fell to a low of $1,307 before closing the week 1.3 per cent lower at $1,316. Silver on the other hand fell 1.4 per cent last week and has closed at $16.36 per ounce.

On the domestic front, the gold and silver futures contract on the Multi Commodity Exchange (MCX) fell, in-tandem with the global prices. Weak Indian rupee failed to limit the downside in the contract as the sell-off in the global prices overshadowed the impact of the weak domestic currency.

The MCX-Gold reversed sharply lower after making an intra-week high of ₹30,250 per 10 gm on Wednesday. The contract fell to a low of ₹29,805 and recovered slightly from there to close the week 1.2 per cent lower at ₹30,009 per 10 gm.

The MCX-Silver futures contract was the worst hit last week. The contract has tumbled 2.8 per cent last week and has closed at ₹37,578 per kg.

Dollar recovers

Recovery in the US dollar index and a strong surge in the US treasury yields kept the bullion prices under pressure all through the week. The US 10 year treasury yields have surged from around 2.7 per cent to 2.85 per cent while the 30 year treasury yields have risen from 3 per cent to 3.15 per cent last week.

The dollar index managed to sustain above 89 and witnessed a strong surge last week. The index rose to a high of 90.57 before closing on a strong note at 90.44, up 1.4 per cent for the week.

The strong close above 89.80 last week reduced the downside pressure on the index. The short-term outlook is now bullish as long as the index remains above 89.80. The index can move up to 91 in the near-term. A decisive break above 91 will see the index extending its upmove towards 92 in the short-term. Strong dollar can continue to keep gold under pressure for some more time and pull the yellow metal prices lower. However, the on-going sell-off in the global equity markets can provide some breather to gold and limit the downside as well as the pace of fall in the bullion prices.

Gold outlook

The short-term outlook for gold is bearish. The global spot gold ($1,316 per ounce) has key resistance in between $1,328 and $1,330.

Though an intermediate bounce to test this hurdle cannot be ruled out in the near-term, an immediate break above $1,330 is less probable.

A fall to $1,300 is likely in the coming days. If gold manages to reverse higher from $1,300, a bounce back move to $1,325 can be seen. But a further fall below $1,300 will increase the likelihood of the downmove extending towards $1,290 or $1,285.

The levels of $1,300, $1,290 and $1,285 are strong supports for gold, which can limit the pace of the current fall and limit the downside. A strong break below $1,285 is unlikely at the moment.

On the domestic front, the MCX-Gold (₹30,009 per 10 gm) is hovering above a key support level of ₹30,000. The contract can remain under pressure if it fails to bounce and break above ₹30,200 from current levels.

A break above ₹30,200 will ease the downside pressure and take the contract higher to ₹30,700 levels again. But, a decisive fall below ₹30,000 can drag the contract lower to ₹29,400 in the short-term.

Silver outlook

The strong fall below $16.5 last week leaves the outlook negative for silver.

There is a strong likelihood of the global spot silver ($16.36 per ounce) prices tumbling towards $15.5 in the short-term.

MCX-Silver (₹37,578 per kg) has tumbled, breaking the key support level of ₹38,500 decisively.

This level will now act as a strong resistance and will cap the upside if an intermediate upmove is seen. Immediate support is at ₹37,350.

If the contract manages to bounce from this support, a relief rally to ₹38,500 is possible in the coming days. But a strong break below ₹37,350 will see the MCX-Silver contract extending its downmove towards the level of ₹36,500.

Published on February 11, 2018
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