Derivatives

Will gold and silver continue their bullish trend?

Akhil Nallamuthu BL Research Bureau | Updated on November 20, 2021

Do note that a minor correction is on the cards

Bullion has been performing well from the beginning of the month. To some extent, especially in the past week, US treasury yields declining helped bullion stay firm whereas the dollar strength dragged both gold and silver.

In terms of the dollar, gold lost about 1 per cent as it closed at $1,845.8 per ounce versus previous week’s close of $1,864. Silver lost 2.6 per cent ending the week at $24.63 per ounce, underperforming gold. Similarly, in the domestic market, gold futures on the Multi Commodity Exchange (MCX) closed with a loss of nearly 1 per cent at ₹48,828 (per 10 grams) versus preceding week’s close of ₹49,314. Whereas silver futures closed the week lower by 2.4 per cent at ₹65,556 (per 1Kg), mirroring the trend in the international market. Despite the weakness last week, the bullion held on to important levels.

Gold bulls have been supported by fresh long positions being built-up as indicated by the Commitment of Traders (COT) data. Latest data by the Commodity Futures Trading Commission (CFTC), shows that net long positions on the COMEX have increased to 835 tonnes – the highest level since the first week of January. This indicates the bullish positioning of speculative investors and thus prices can be expected to stay at higher levels in the near-term.

MCX-Gold (₹48,828)

Gold futures, after witnessing a minor decline in early November, took support at ₹47,000 and has been on a strong rally. Even though the futures lost some ground last week, it hovers around the key level of ₹49,000 and the inclination remains on the upside. The short-term trend will remain bullish until the price is above ₹48,000 and the medium-term trend will be up as long as the price is above ₹45,700.

The bullishness is supported by the relative strength index (RSI) and the moving average convergence divergence (MACD) on the daily chart as they remain in their respective positive territory. The average directional index (ADX) shows that the upward momentum is still good. However, from the perspective of trading, one should be cautious as the contract approaches the critical level of ₹50,000 because there can be some profit booking at these levels, increasing the likelihood of a price correction. Traders and short-term investors who already hold long positions can continue to hold and look to exit when price reaches ₹50,000.

Fresh long positions can be executed if the contract decisively breaches ₹50,000. Stop-loss can be placed at ₹49,000. The nearest resistance can be spotted at ₹51,820. Yet, the contract is expected to cross over this level as the breakout of ₹50,000 can induce enough momentum to lift the contract to ₹52,500. One can consider booking partial profits at this level, shift the stop-loss to ₹51,500 and look for the next target at ₹54,000.

Instead of breaching ₹50,000 if the contract sees price moderation, go long at ₹48,300 with an initial stop-loss at ₹47,000. Once the price moves above ₹50,000, revise the stop-loss to ₹49,000 and can exit at ₹52,500 and at ₹54,000.

MCX-Silver (₹65,556)

Unlike gold futures, silver futures saw a price drop last week, losing 2.4 per cent. The contract faced a resistance at ₹67,500 last week from where it started depreciating. However, the trend remains bullish and from current levels, there is a strong support band of ₹64,300-65,000. The 21-day moving average (DMA) coincides at ₹65,000 making the support stronger. Subsequent support is at ₹62,500 and the near-term trend will be positive until the contract stays above this level.

The price action on the daily chart since mid-August resembles that of an inverted head and shoulder pattern with an angled neckline, hinting at a bullish reversal. The neckline currently coincides at ₹67,500, making it a significant level.

Importantly, the RSI and the MACD on the daily chart are now showing little bit of weakness even as they remain in the positive region. Thus, the contract will most probably extend the decline and then reverse upwards within the price area of ₹64,300-65,000.

So, one can hold existing longs with stop-loss at ₹62,500. Fresh longs can be initiated if the price softens to ₹64,300 and stop-loss can be at ₹62,500.

A revival of the uptrend can initially take the contract upward to ₹67,500. While ₹68,550 can act as a barrier above this level, the futures is expected to ease past this level as a breakout of ₹67,500 can induce fresh upward momentum. So, the contract can swiftly appreciate to ₹70,000. Once the contract rallies past ₹67,500, shift the stop-loss upwards to ₹65,000. Liquidate the buys at ₹70,000 since there can be a correction after the futures hitting this level.

One should keep an eye on gold futures at ₹50,000 because a correction in gold can also weigh on silver futures, irrespective of its support and resistance levels.

Published on November 20, 2021

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