Commodity Analysis

Short-term outlook turns negative for gold

Gurumurthy K | Updated on March 31, 2019 Published on March 31, 2019

The yellow metal has to rise past $1,310 to regain strength

Gold prices tumbled, contrary to expectations of a rally, to $1,330 per ounce levels, last week. The global spot gold prices failed to breach the key level of $1,320 for the second consecutive week. The yellow metal made a high of $1,324 and plummeted below the psychological level of $1,300. It made a low of $1,286 and bounced slightly higher from there to close at $1,292 per ounce, down 1.6 per cent for the week.

Silver, on the other hand, slumped about 2 per cent last week. The global spot silver prices declined sharply, breaking below the key support level of $15.35. It tested the psychological support level of $15 before closing the week at $15.12 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. However, the loss in the domestic market was slightly lower than the fall witnessed in the global prices. The MCX-Gold futures contract was down 1.3 per cent. The contract has closed at ₹31,734 per 10 gm. The MCX-Silver futures contract, on the other hand, was down 1.6 per cent. It closed the week at ₹37,761 per kg.

Dollar strength

The US dollar index gaining strength triggered the sharp fall in the bullion prices last week. The index closed at 97.28 and was up about a per cent last week.

The dollar index has risen decisively above 97. As long as it trades above 97, the outlook is positive. An up-move to 97.8 is likely in the coming days. Such an up-move in the dollar index can continue to keep gold under pressure. This keeps the possibility high for gold prices to fall further in the coming days.

On the other hand, gold can get a breather if the dollar index declines below 97.

A fall below 97 can take the index lower to 96.8 and 96.5 in the near term. It will also increase the possibility of the index revisiting 96 levels thereafter.

Gold outlook

The near-term outlook is negative. The global spot gold ($1,292 per ounce) has a key resistance at $1,300 and then in the $1,305-1,310 region. A strong break and a decisive close above $1,310 is needed to bring back the bullish sentiment. In such a scenario, gold can revisit the $1,320 levels and also rise to $1,330 thereafter.

But as long as gold remains below $1,300, the outlook will be negative. A dip to $1,285 and $1,280 is possible in the near term.

A break below $1,280 will increase the likelihood of the fall extending to $1,275 and $1,270 thereafter.

On the domestic front, the MCX-Gold (₹31,734 per 10 gm) has been oscillating around ₹32,000 over the last three weeks. The bias on the chart is negative as long as the contract trades below ₹32,000. The immediate support is at ₹31,500.

A break below it can drag the contract lower to ₹31,270. A further break below ₹31,270 will then increase the likelihood of the contract extending its down-move to ₹31,130.

The contract will get a breather only if it makes a decisive close above ₹32,000. In such a scenario, the downside pressure will ease and the contract can rise to ₹32,500.

Silver outlook

The psychological support level of $15 has been holding well for the global spot silver ($15.12 per ounce). As long as it trades above $15, a range-bound move between $15 and $15.2 is possible in the near term. A break above $15.2 can take the prices higher to $15.4. In such a scenario, silver can trade in a sideways range between $15 and $15.65 in the short term.

On the other hand, if silver declines below $15, it can dip to $14.85. A further break below $14.85, though unlikely, can drag silver lower to $14.5 and $14.35 thereafter.

The outlook for the MCX-Silver (₹37,761 per kg) contract is negative. The psychological level of $38,000 will now act as good resistance.

A fall to ₹37,000 looks likely in the near term. A strong break below ₹37,000 will increase the downside pressure and can drag the contract lower to ₹36,500 or even ₹36,000 thereafter.

The outlook will turn positive for MCX-Silver only if it decisively breaks above ₹39,000. But such a strong move looks unlikely at the moment.

The writer is Chief Research Analyst at Kshitij Consultancy Services

Published on March 31, 2019

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