Commodity Analysis

Silver prices rally as gold consolidates

Akhil Nallamuthu | Updated on September 01, 2019 Published on September 01, 2019

Silver delivered double the gains recorded by the yellow metal in August

The global spot price of gold maintained a flat trend over the past week, trading between a range of $1,520 and $1,550. The yellow metal opened higher last week on the back of the US cancelling the postponement of tariff imposition on imports from China (retaliating to China’s tariff imposition on goods and services worth $75 billion from the US). However, the rally could not sustain.

The gold price has been in the consolidation range for the past three consecutive weeks by forming a broader range between $1,490 and $1,550. Hence, for gold to start trending, its price must break on either of the limits of the consolidation range. Broadly speaking, as far as the price stays above $1,500, gold will retain its bullish bias. On the contrary, deviating from the usual correlation, silver spot price rallied over the past week, outperforming gold. Silver recorded a weekly gain of 5.4 per cent by closing at $18.36 after making a high of $18.65, whereas gold closed at $1,520, losing 0.4 per cent, last week.

Silver managed to outshine gold in August, delivering double the gains recorded by the yellow metal. With gold prices getting too heated up, some traders could be switching to silver.

Trade war escalation

Since the beginning of August, gold, which typically attracts safe-haven buying in times when global risk-aversion surges, has benefited from the escalation in the trade war between the US and China. However, both sides have made some attempt to calm the sentiment by issuing positive statements. This has helped calm the markets, thereby reducing the demand for safety; as a result, bullion prices have moderated.

Trade representatives from both the countries are set to meet this month, and the outcome will be closely tracked. Any progress in the talks will result in gold and silver being sold off in the short term. But any indication of further escalation will trigger another round of buying, which will take the bullions to fresh highs as an immediate reaction. It is to be noted that the new tariffs announced last week by both the countries came into effect on September 1.

MCX gold October futures contract closed the week very flat at ₹38,677 on Friday after making a lifetime high of ₹39,425 mid-week.

Gold outlook

Along with the spot gold, the futures contract is trading in a range with its upper and lower limits at ₹38,650 and ₹39,425, respectively. Hence, the yellow metal is not expected to trend until it breaches either side of the level.

If the futures contract breaks above ₹39,425, the next level of resistances comes at around ₹40,000. In case the price breaks down from the range, it will most likely decline to ₹37,600 and ₹36,550. A break below ₹37,600 has the potential to change the medium-term trend to bearish. Hence, it is an important level to watch.

MCX silver December futures contract raised past the previous high and made a record high at ₹48,789, and ended the week at ₹47,765, giving up some of its gains towards the end of the week. Silver outperformed gold and maintained its strong upside momentum.

Silver outlook

If the bullish trend continues and ₹48,789 is broken, the contract will face an immediate resistance at around ₹49,000. A break above ₹49,000 is likely to push the price up to a psychological level of ₹50,000. However, if it corrects on the back of profit-booking, the contract might find an immediate support at ₹47,500. Any further correction will retract the price to ₹46,735.

Published on September 01, 2019
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