Commodity Analysis

Short-term outlook mixed for gold

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

The broader bias will remain positive as long as prices hold up above $1,300

It was a volatile week for gold. The yellow metal surged to a high of $1,340 per ounce, but reversed sharply lower, giving back all the gains. Gold made a low of $1,313 and bounced from there to close the week at $1,324 per ounce.

Pressure eases

Uncertainty and fear in the market after the US President proposed import tariffs on aluminium and steel drove bullion prices higher in the initial part of the week. But the decision to exempt countries like Canada and Mexico from the tariffs gave a breather to the market in the later part of the week.

This triggered a strong bounce-back in the dollar index which, in turn, pulled gold prices lower from the week’s high of $1,340. The dollar index reversed higher from its low of around 89.40 and closed the week at 90.10. The index has been getting strong support in the 89.50-89.40 region. Resistance is at 90.55.

A strong break above it will take the index higher to 91.2 initially. A further break above 91.2 will then pave the way for the next targets of 91.8 and 92. Such a rally in the dollar index can keep gold prices under pressure.

The outlook for the dollar index will turn negative only if it declines below 89.40. The index can then fall to 89 or 88.5 thereafter.

Gold outlook

Support in the $1,310-$1,300 zone continues to hold well for the yellow metal. Global spot gold ($1,323 per ounce) bounced on Friday from its low of around $1,313. This keeps the broader $1,300-$1,370 sideways range intact. As long as it remains above $1,310, a rise to test the intermediate resistance at $1,341 is possible in the near term. A strong break above this hurdle will then take the yellow metal further higher towards $1,360 and $1,370 — the upper end of the range.

The outlook will turn negative for a fall to $1,290 or $1,280 only if gold declines below $1,300. But such a fall looks less probable at the moment.

On the domestic front, the gold futures contract on the Multi Commodity Exchange (MCX) closed on a mixed note last week at ₹30,401 per 10 gm. The contract is managing to sustain above the key support level of ₹30,000.

A rally to ₹30,900 or even ₹31,200 is possible in the short term as long as the contract remains above ₹30,000. The contract will come under pressure only if it declines below ₹30,000. Such a break can drag it to ₹29,600 or ₹29,300 thereafter.

Silver outlook

Global spot silver prices have been oscillating in a narrow range around $16.5 per ounce for more than a month now. The outlook continues to remain unclear for silver.

A breakout on either side of the support at $16.25 or the resistance at $17 will decide the next trend. Until then it can remain volatile in the $16.25-$17 sideways range for some more time.

A break below $16.25 can take silver lower to $15.75. On the other hand, a strong break above $17 can take silver prices higher towards $17.5 and $17.75.

The outlook for the MCX-Silver futures (₹38,947 per kg) contract is relatively more positive than the global prices. The contract has support at ₹38,470. As long as it sustains above this support, the possibility is high for it to rally beyond ₹39,500, targeting ₹40,000 or even higher levels. The bullish outlook will get negated if the contract declines below ₹38,740. Such a fall can drag it to ₹38,000 or ₹37,500 thereafter.

Published on March 11, 2018
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