The fundamentals of gold look to be improving steadily as the demand for the precious metal has seen an increase for a third straight quarter, according to the latest data released by the World Gold Council (WGC). While demand in the second quarter of calendar year 2021 stood at 955.1 tonnes compared to 878 tonnes in the first quarter, there is not much change y-o-y compared to demand in the same quarter of 2020 at 960.5 tonnes. The average quarterly price of gold in Q2-2021 was 6 per cent higher at $1,816.5 per ounce.

Jewellery demand posted a growth of 60 per cent y-o-y to 390.7 tonnes and remained the biggest contributor. However, investment demand took a hit as it halved to 284.5 tonnes, largely due to the drop in ETF (exchange traded fund) demand. Notably though, the demand for bars and coins registered a growth of 56 per cent. But there are some green shoots of late, as the ETF flows turned positive in Q2-2021 after recording net outflows in the preceding two quarters. Going ahead, WGC expects that in 2021, jewellery as well as coins and bars demand will offset lower levels of ETF and OTC (over the counter) investment demand compared to 2020.

Even as the global investment demand dropped by 51 per cent y-o-y to 284.5 tonnes in second quarter this year, it posted a growth of 7 per cent in India to 21 tonnes. Jewellery demand in the country grew by 25 per cent to 55.1 tonnes, lower than the growth seen in world total of 60 per cent to 390.7 tonnes.

A positive trend was also seen in price movements last week as gold as well as silver gained by 0.7 and 1.2 per cent over the past week ending at $1,813.6 and $25.46, respectively. Similarly, gold futures (October series) on the Multi Commodity Exchange (MCX) appreciated 0.5 per cent and closed the week at ₹48,001 (per 10 grams) whereas silver futures (September expiry) ended at ₹67,847 (per Kg) on Friday, up by 1.2 per cent for the week.

MCX-Gold (₹48,001)

During the first half of the past week, October expiry gold futures moved in a tight range of ₹47,550 and ₹48,000. But on Thursday, it rallied following prices in the international market which went up on the back of weak dollar. The contract went past the important level of ₹48,000, where the 21-day moving average (DMA) lies and rallied to ₹48,400, where the 50-DMA lies. While a daily close above this level would add some bullishness to futures, it faces critical resistance at ₹48,800. Unless this level is breached, the short-term trend will remain unclear. So, gold futures is looking to enter a sideways trend with boundaries for October futures at ₹47,550 and ₹48,800.

While the relative strength index (RSI) is showing a fresh uptick following last week’s rally, the moving average convergence divergence (MACD) remains in the neutral region and the number of outstanding open interest (OI) of all active futures contract came down and stood at 13,119 contracts compared to 14,731 contracts by the end of the preceding week. Notably, rising price with a drop in the OI means long liquidation.

So, despite bullish signs such as the price action on the daily chart forming a higher base and a positive RSI, the contract needs to crack the resistance at ₹48,800 in order to establish an uptrend. Traders can wait and initiate fresh longs above ₹48,800. A breach of this level can take futures to ₹49,600. But if the price moderates from here, the contract is likely to find support at ₹48,000 and ₹47,550.

MCX-Silver (₹67,847)

Following the breach of support at ₹67,700 in the week before last, September expiry silver futures opened on the back foot. The contract declined and marked an intraweek low of ₹65,656 on Tuesday. However, the contract swiftly made a U-turn and on Thursday, the price rose sharply. It went above the crucial level of ₹67,700. But on Friday, the 21-DMA at around ₹68,400 showed resistance and prevented the contract from extending the rally.

As the trend has been bearish since June, unless the contract invalidates the resistance at ₹68,400, hopes are limited for the trend to turn bullish. Besides, the number of outstanding OIs of the active futures dropped over the past week to 9,926 contracts from 13,265 contracts.

Even so, there are some positive signs – the RSI is showing a fresh uptick and the MACD is turning its trajectory upward after having headed south in the past couple of weeks. A breakout in gold can have a positive impact on silver, helping it to go above ₹68,400.

One can wait for more clarity before entering a trade. If the contract rallies past ₹68,400, traders can consider longs but if contract slips below ₹67,000, shorts will be the better choice. Resistances above ₹68,400 are at ₹70,000 and ₹71,700; supports below ₹67,000 are at ₹65,700 and ₹65,000.

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