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Investors weighed on the interest rate hike by the Federal Reserve, and they seem to have dumped gold in the past week. With a 25 bps (basis points) rate hike, an interest-bearing instrument such as treasuries might look attractive at a time of rising inflation. However, this is not the end and persisting higher inflation can always draw interest towards gold. Moreover, political and economic uncertainties created by the Ukraine war is a plus for the safe-haven asset.
That said, since the beginning of 2022, investors have been showing good interest in the yellow metal. The global gold ETFs (Exchange Traded Funds) witnessed an inflow of 181.2 tonnes until March 11. Interestingly, in this period, the India gold ETFs saw an outflow of 1.5 tonnes.
On the trading front, both gold and silver posted weekly losses. The spot gold in dollar terms, at $1,921, depreciated 3.2 per cent, the highest since June second week last year. Similarly spot silver, at $24.95, lost 3.3 per cent, the highest weekly loss in the last three months. On the Multi Commodity Exchange (MCX), gold futures (April expiry) was down by 2.7 per cent as it ended at ₹51,447 (per 10 grams) and silver futures (May series) lost 3.5 per cent as it closed at ₹67,876 (per kg).
MCX-Gold (₹51,447)
The April futures of gold on the MCX extended the decline and made an intraweek low of ₹51,028 on Wednesday, before ending the week at ₹51,447. Therefore, the stop-loss at ₹51,400 that we had for the longs would have triggered.
As it stands, the support at ₹51,000, at least for now, is making the task harder for the bears to pull down the price further. However, the price action indicates that the price could touch ₹50,000 before the contract can turn upwards. On the upside, the resistances are at ₹52,000 and ₹53,500.
Hence, traders can stay on the sidelines for now and buy when contract falls to ₹51,000. Accumulate more longs at ₹50,000 and place initial stop-loss at ₹49,000. Once the contract recovers above ₹52,000 after our longs are triggered, alter the stop-loss to ₹50,800. Liquidate the longs at ₹53,500.
But if the contract rallies past ₹52,000 without dropping to ₹50,000, one can aim for short-term trades. That is, buy on a clear break of ₹52,000 with stop-loss at ₹51,200 and exit at ₹53,500.
MCX-Silver (₹67,876)
The May futures of silver on the MCX declined last week and registered an intraweek low of ₹67,117. But it recovered from the lows towards the end of the week and closed the week ₹67,876. Therefore, the support band of ₹66,350-67,500 stays valid and this means the bulls are not out of the game. Notable support below ₹66,350 is at ₹65,000 – the 50-day moving average. Yet, until the support at ₹66,350 stays valid, one can retain the near-term bullish view.
A recovery from here can take the contract initially to ₹70,000 and a breach of this level can lift it to ₹73,000 over the medium-term. Therefore, traders can hold the longs that we initiated at around ₹69,000 with a stop-loss at ₹66,000. However, revise down the target from ₹76,000 to ₹73,000 since this level can act as a strong hurdle.
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