Commodity Analysis

Short-term outlook is bullish for gold

Gurumurthy K | Updated on July 21, 2019 Published on July 21, 2019

The yellow metal can move higher, ahead of the Fed meeting next week

Gold began the week on a stable note and turned volatile towards the end of last week. After oscillating between $1,400 and $1,430 per ounce in the initial part of the week, the global spot gold prices surged to a high of $1,446 on Friday. However, the yellow metal came-off from its high, giving back most of the gains, and closed at $1,425.37 per ounce, up 0.7 per cent for the week.

Silver, on the other hand, outperformed gold last week. The global spot silver prices sky rocketed over 6 per cent last week. The global silver prices breached the key resistance level of $14.50 per ounce and surged to a high of $16.59. However, it gave back some gains and closed the week at $16.20 per ounce.

On the domestic front, the gold and silver futures contract on the Multi Commodity Exchange (MCX) moved in tandem with the global prices. The MCX-Gold was up 0.4 per cent last week and closed at 35,036 per 10 gm. The MCX-Silver contract surged over 6 per cent and closed the week at 40,682 per kg.

Rate cut hopes

Increasing hopes of a rate cut from the US Federal Reserve in its meeting this month is keeping gold prices higher. The Fed is scheduled to announce its policy next week on Wednesday (July 31, 2019). Prices of the yellow metal can continue to trade higher, ahead of the Fed meeting. The actual outcome of the meeting next week will determine the direction of the next move. Since the prices have risen sharply so far, there is a strong likelihood of a sharp correction after the meeting next week.

Gold outlook

The near-term outlook is positive. The global spot gold ($1,425.37 per ounce) has cluster of supports in the broad $1,420-1,410 region and then at $1,400, which can limit the downside in the near term. A strong rise to $1,460-1,470 is likely, ahead of the Fed meeting. Gold will come under pressure only if it declines below the psychological level of $1,400. But such a strong downmove looks less likely at the moment.

The MCX-Gold (35,036 per 10gm) has support at 34,900. As long as the contract trades above this support, the outlook remains bullish and a rise to 35,400-35,500 is possible this week. On the other hand, if the MCX-Gold contract declines below 34,900, it can dip initially to 34,350. A further break below 34,350 will then increase the likelihood of the fall extending to 33,850.

Silver outlook

The global spot silver ($16.20 per ounce) has to sustain above $16 to retain the bullish momentum. As long as silver trades above $16, a range-bound move between $16 and $16.60 is possible for some time. A strong break above $16.60 is needed to bring back fresh momentum and take silver further higher to $17 and $17.25 levels. Silver will come under pressure if it declines below $16. In such a scenario, a corrective fall to $14.60 and $14.50 is possible.

On the domestic front, the MCX-Silver (40,682 per kg) has come-off sharply after testing the key long-term resistance level of 41,500 last week. Immediate support is at 40,500; if it holds, a rise to 41,500 is possible again. A strong rise past 41,500 will see the current rally extending to 42,000 and 42,500. But if the MCX-Silver contract declines below 40,500 a sharp fall to 39,500-39,000 is possible on the back of profit taking.

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Published on July 21, 2019
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