Commodity Analysis

Weak dollar boosts gold prices

Gurumurthy K | Updated on January 09, 2018 Published on November 19, 2017

The short-term outlook is bullish; the yellow metal can breach the $1,300 level

The struggle to break the resistance at $1,280 per ounce came to an end last week. After hovering around this hurdle for three continuous weeks, the global spot gold rose sharply breaching $1,280 last week.

Though the yellow metal oscillated around $1,280 for most part of the week, it gained momentum on the final trading day and surged to a high of $1,297 before closing the week at $1,292.42 per ounce, up 1.4 per cent for the week. Weakness in the US dollar aided gold prices move higher last week.

Silver outperformed gold by surging over 2 per cent last week. Global spot silver rose sharply breaking and also closing decisively above the psychological hurdle of $17 per ounce. Silver closed at $17.31 per ounce, up 2.5 per cent for the week.

On the domestic front, gold and silver futures contracts on the Multi Commodity Exchange (MCX) moved in tandem with the global spot prices. MCX-Gold was up 0.67 per cent for the week and closed at ₹29,690 per 10 gm. The silver futures contract on the MCX closed at ₹40,013 per kg, up 1.28 per cent for the week.

Watch the dollar

The US dollar index (93.66) fell in the past week, breaking below the crucial 94-93.85 support zone. The bounce-back move from the week’s low of 93.40, which failed to break above 94, indicates lack of strength. As long as the index trades below 94, it can test the next crucial support level of 93.30. A break below this support can drag the index lower to 92.70. Such a fall can push gold prices above $1,300 in the coming days.

The dollar index will have to rise past 94 in order to gain momentum. Such a break will pave the way for the next targets of 94.4 and 95. Such a rally will ease the downside pressure and bring back the medium-term bullish view of targeting 96 and 96.5 levels.

Gold outlook

The short-term outlook is bullish for gold ($1,292 per ounce). Immediate support is in the $1,287-$1,285 region, which can limit the downside in the near term. Dips to this support zone may find fresh buyers.

As long as gold trades above $1,285, a rally breaking above $1,300 to $1,305 and $1,310 is likely in the coming days. Inability to break above $1,310 can trigger a pull-back move to $1,305 and $1,300 again. But a decisive break above $1,310 will give an initial sign that the corrective fall that has been in place since the September high of $1,357 has ended.

It will also indicate that the uptrend that has been in place since the beginning of this year has resumed. In such a scenario, there is a strong likelihood of gold rallying to $1,350 and $1,365 over the medium term.

On the domestic front, the MCX-Gold (₹29,690 per 10 gm) futures contract is getting strong support from the 21-day moving average at ₹29,434. The contract has been range-bound between ₹29,350 and ₹29,750 for more than a week. Within the range, the bias is bullish. The contract is likely to break above ₹29,750 and target ₹30,000 in the short term. A further break above ₹30,000 will increase the likelihood of the rally extending to ₹30,300 or even ₹30,500.

The near-term view will turn negative only if the contract declines below ₹29,350. The next targets are ₹29,200 and ₹29,000.

Silver outlook

The decisive close above $17 per ounce leaves the global spot silver ($17.31) much stronger than gold. Immediate support is at $17.15, which can limit the downside in the near term. A rise to $17.55 is likely in the coming days. Inability to break above $17.55 can drag silver lower to $17.25. But a strong rise past $17.55 will pave the way for the next targets of $17.80 and $18.

MCX-Silver (₹40,013 per kg) is managing to sustain above the support at ₹39,500. As long as it trades above ₹39,500, a rally to ₹40,540 or ₹40,745 is likely in the short term. The contract will come under pressure if it breaks below ₹39,500. Such a break can take it lower to ₹39,150 initially. A further break below ₹39,150 can drag the contract lower to ₹38,700.

Published on November 19, 2017

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