The US inflation data, which stood higher than expected in September, keeps intact the expectations of the Fed going for sharp rate hikes high. The core CPI increased 6.6 per cent year on year, the highest in the last 40 years.

This led to a sharp fall in the prices of bullion. The spot price of gold and silver in the international market lost 3.1 and 9.2 as they closed at $1,641.8 and $18.3 per ounce, respectively. Similar fall happened in the domestic market too. On the Multi Commodity Exchange (MCX) the nearest expiry gold and silver futures depreciated 3.3 per cent and 9.1 per cent to end the week at ₹50,260 (per 10 gram) and ₹55,226 (per kg), respectively.

Such weak performances will dent the confidence of investors further. It is certainly not good at a time when bullion has not been shielding the investors against inflation so far this year. Year-to-date, spot gold and silver in terms of dollar have lost about 10 per cent and 22 per cent. This can lead to further outflows from gold ETFs (Exchange Traded Funds) across the globe weighing on the prices more. Global gold ETFs have seen net outflows in the past five months.

Technically too, the bear trend looks steady as the rallies are being sold.

MCX-Gold (₹50,260)

Between September 16 and October 7, the MCX gold futures saw mild long build-up. The price rose from ₹49,380 to ₹51,960 along with an increase in the cumulative Open Interest (OI) from 18,554 to 19,423 contracts in the corresponding period on the MCX. However, last week, the prices declined. The December futures lost 3.3 per cent and the cumulative OI declined to 16,535 contracts, indicating long unwinding.

On the chart, the price action shows that the contract was unable to rally past ₹52,000. Above this lies the barriers at ₹52,800 and ₹54,000. Until the contract gets over these levels, the broader bias will be bearish and so, we might see further decline from here. While ₹50,000 is a support, the contract will most likely depreciate to the price band of ₹49,000-49,250 – a key support.

A breach of ₹49,000 can intensify the sell-off, wherein it can see a fall towards ₹47,500, a support. Subsequent support is at ₹46,500.

From a trading perspective, the risk-reward is not favourable to initiate fresh shorts at the current level. Therefore, one can consider going short if the contract inches up to ₹51,000. In such a case, place stop-loss at ₹52,100. Exit the shorts at ₹49,000.

MCX-Silver (₹55,226)

From the beginning of September until October 7, the price of silver futures rallied. Yet, the cumulative OI on the MCX declined — it nearly halved from 28,014 to 14,344 contracts on Friday. So, largely, silver futures witness short covering.

Silver trade
From the perspective of trading, like gold futures, the risk-reward for short positions at the current level does not appear attractive

Against this backdrop, in the last week, December futures tumbled 9.1 per cent to close at ₹55,226 and there was a sharp increase in the cumulative OI which shot up to 26,940 contracts on Friday. This indicates that the sellers are making a comeback and that we could be seeing more drop in prices from the current level.

Although ₹55,000 is a support, we expect the contract to dip below this level and fall towards the support band of ₹52,000-52,500. On the upside, a rally beyond ₹58,000 is less likely.

From the perspective of trading, like gold futures, the risk-reward for short positions at the current level does not appear attractive. Therefore, one can wait for the contract to see a minor corrective rally to ₹58,000 and then go short with stop-loss at ₹60,000. Exit the shorts at ₹52,500 since there can be a rebound from the price region of ₹52,000-52,500.

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