Why you should hold the longs on bullion

Akhil Nallamuthu |BL Research Bureau | Updated on: Mar 13, 2022

Gold and silver futures above crucial support

Safe haven demand pushed bullion prices up in the early part of last week. But later, both gold and silver gave up the gains and ended the week on a flat note. In the international market, the spot gold and silver price ended the week at $1,985.3 (up by 0.9 per cent) and $25.8 (up by 0.8 per cent) per ounce respectively. On the Multi Commodity Exchange, the gold futures closed at ₹52,878 (per 10 grams) versus the preceding week’s close of ₹52,559 whereas the silver futures ended the week at ₹70,370 (per kg) as against the previous week’s close of ₹69,160.

Nevertheless, the fundamental factors for gold continue to improve. The global gold ETFs (Exchange Traded Funds) inflows were positive in February (35.3 tonnes) as well according to the latest data by World Gold Council (WGC). Therefore, the inflows for the year has gone up to nearly 82 tonnes till February 28. North American region remained the biggest contributor with 70 tonnes inflow. Speculators too seemed bullish. The net long position on the COMEX stood at 999 tonnes as on March 8, 2022, the highest since March 10, 2020.

MCX-Gold (₹52,878)

The April futures of gold on the MCX rallied and hit a high of ₹55,558 last Tuesday before declining and wrapping up the week at ₹52,559. Thus, it gained 0.6 per cent. Although the trend remains bullish, the price action, especially the inverted hammer candlestick on the weekly chart, calls for caution. That is, there could be a corrective decline towards the nearest support at ₹51,800. Subsequent supports are at ₹51,000 and ₹50,000. A breach of ₹50,000 can turn near-term trend bearish. On the other hand, the contract might find it difficult to breakout of ₹56,000 in the near-term.

We have been carrying long positions for nearly a month. The target and stop-loss levels are at ₹56,000 and ₹49,500. One can tighten the stop-loss to ₹51,400. The contract just fell short of hitting the target as it made a high of ₹55,558. We hereby advise to continue to hold the long but alter the target to ₹55,000 so as to adjust according to the recent high. For fresh positions, traders can wait for more clarity in price action.

MCX-Silver (₹70,370)

Like gold futures, silver futures (May series) soared in the first half of the week and hit a fresh nine-month high of ₹73,078 on Tuesday. But then it witnessed a considerable fall ending the week at ₹70,370. It posted a weekly gain of 1.8 per cent. The contract has formed an inverted hammer candlestick on the weekly chart. This hints at a possible corrective decline, even though the overall bias remains bullish. There is a significant support band within ₹66,350 and ₹67,500. In the upcoming week, a break below ₹66,350 is less likely and so is a breakout of ₹73,000.

As per our suggested strategy last week, one would be holding long position initiated at around ₹69,000. Stop-loss was at ₹64,700 and the target was ₹76,000. While traders can retain the same target, tighten the stop-loss to ₹66,000. Because a breach of this level may turn the short-term trend negative.

Published on March 12, 2022
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