The price of precious metals did not see much change last week. India being one of the largest consumers of gold, Akshaya Tritiya, considered an auspicious day here for gold buying, is seen as an important event for the yellow metal as it can create an uptick in demand, at least temporarily. But with many States observing a complete lockdown because of the pandemic, the usual buying spree that happens around this time has not occurred. Thus, there was no trigger on the upside for domestic bullion this week.
Increase in inflation in the US limited the downside though, as precious metals are seen as a hedge against inflation. The Consumer Price Index (CPI) in US has been increasing - it stood at 0.8 per cent in April compared to 0.3 per cent in January. Treasury yields did not have an impact as they appear to have settled around 1.65 per cent level for now.
Gold in dollar terms ended the week largely unchanged at $1,842.2 per ounce compared to preceding week’s close of $1,830.5 and silver closed at $27.41 per ounce as against the previous week’s close of $27.43. Likewise, gold futures (June expiry) on the Multi Commodity Exchange) closed at ₹47,676 (per 10 grams) on Friday compared to ₹47,751 a week ago and silver futures (July expiry) on the MCX ended at ₹71,085 (per Kg) against ₹71,429 – the previous week’s close.
Despite several bullish indications, June futures of gold on the MCX could not extend a rally above the resistance band of ₹48,000 and ₹48,500 last week. Even though the contract closed with a gain on Monday, it lost ground during subsequent sessions. Nevertheless, on a weekly close basis, there was not much of a change as the contract reacted positively to the 21-day moving average (DMA) support at around ₹47,500 and recouped most of the losses.
But changes over the last week suggest that the uptrend has lost strength. The relative strength index (RSI) and the moving average convergence divergence (MACD) indicators on the daily chart, though in the bullish zone, have turned flat over the past week. This indicates a lack of trend.
The daily trading volume has seen a declining trend in the past few trading sessions, signalling reduced activity. Also, outstanding open interest across all active futures contract of gold dropped to 14,086 contracts from 14,336 contracts a week ago.
The price movement of the past month shows that ₹48,500 is acting a strong resistance whereas ₹46,500 is acting a strong support. Until either of these levels is breached decisively, the trend will remain uncertain.
A breakout of ₹48,500 can generate significant amount of buying interest which can result in a quick rally towards the crucial level of ₹50,000. On the other hand, if the contract breaks below the support at ₹46,500, it can turn the short-term trend negative wherein the contract could drop to ₹46,000 and then possibly to ₹45,400.
From trading perspective, notice that the bias will be bullish until the support at ₹46,000 holds.
Similar to gold futures, silver futures (July expiry) declined during the week but reversed direction on Friday and ended the week on a flat note. The important support at ₹70,000 helped the contract regain some of its positive momentum. Since the 21-DMA currently lies near ₹70,300, the price band of ₹70,000 and ₹70,300 provided cushion and restricted the price fall. As the support helped in limiting the downside, it was the resistance at ₹72,500 that initially blocked the bulls, following which the price moderated.
Indicators such as the RSI and the MACD, which clearly stayed bullish on the daily chart, are now flat. Even as these indicators remain in positive territory, both turning flat implies that the contract is struggling to establish a trend.
The daily trading volume of silver futures gradually declined over the past week and like in gold futures, the number of outstanding open interests of active future contracts of silver decreased to 9,972 contracts from 10,033 contracts a week before.
Irrespective of how the above factors change in the upcoming week, the next leg of trend in silver futures will remain undecided until the contract moves out of the broad range of ₹68,000 and ₹72,500.
A breach of ₹72,500 can lift the contract to ₹75,000 – a key level. However, if the contract slips below the support at ₹68,000, it could face considerable sell-off which can potentially drag the contract to ₹66,300.
Notably, the contract has a support above the range bottom of ₹68,000 i.e., ₹70,000.
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