Derivatives

Will gold move towards ₹50,000 this week?

Akhil Nallamuthu BL Research Bureau | Updated on May 22, 2021

The MCX gold futures contract’s nearest support is at ₹48,600, below which another support is at ₹47,650

Gold made progress last week and posted a weekly gain after witnessing a minor correction the week before. The yellow metal relied on a weak dollar, though the FOMC (Federal Open Market Committee) meeting minutes showed that some participants suggested that it might be appropriate to start discussing the pace of asset purchases. Although this sparked speculation on the Fed hinting about tapering, there was no roadmap or timetable to come to a conclusion. While the US dollar rallied on Wednesday, it swiftly reverted to a downward path. Hence, it could not impact gold which continued to inch upwards.

Silver, however, did not reflect the same sentiment. Its prices were kept under check as all metal prices declined towards the end of the week. Silver, which carries the characteristics of industrial metals due to its applications, faced pressure following a statement by China about increasing commodity prices. As the prices of metals have been soaring over the past year, the Chinese cabinet seems to have decided to come up with mechanisms to check unreasonable increases in price.

Gold ended the week with a gain of 2 per cent as it closed at $1,880.3 (per ounce) on Friday compared to $1,842.2 a week ago. But because the rupee gained versus the dollar, gold (August expiry futures) on the Multi Commodity Exchange (MCX) posted a lower gain of 1.5 per cent in terms of rupee. It closed at ₹48,889 (per 10 grams) on Friday. Silver, after gaining during the early part of the week, gave up gains and ended the week flat at $27.52 (per ounce). On the MCX, the July futures contract wrapped up the week flat at ₹71,049 (per kg).

MCX-Gold (₹48,889)

The futures contract of gold on the MCX began the week on a positive note and the August series rallied and closed above the key resistance of ₹48,600 on Monday. This could trigger a fresh bout of buying in the coming week that can lift the contract towards the important level of ₹50,000. The contract was able to sustain above ₹48,600 through the entire week and the price rise has come on the back of the 21-day moving average support which was at around ₹47,650.

Other positive signs include price action on the daily chart, which has been forming higher highs and higher lows since April and indicators such as the relative strength index (RSI) and the moving average convergence divergence (MACD) on the daily chart as both these indicators are showing fresh uptick. These indicators show steady advancement on the weekly chart as well. Besides, the total outstanding open interest of all active futures contracts increased with the price last week to 14,556 contracts from 14,086 contracts a week ago.

Because of the above reasons, it can be assumed that the gold futures is set to further rally during the week and so traders can consider initiating fresh long positions. While the immediate resistance is the strong hurdle at ₹50,000, a breach of this level can intensify the rally. Above ₹50,000, the futures contract is likely to quickly jump to ₹51,000. The nearest support is at ₹48,600, below which notable supports are at ₹47,650 and ₹47,000.

MCX-Silver (₹71,049)

The July futures contract of silver on the MCX, which was largely treading a horizontal path between ₹68,000 and ₹72,500, opened last week with a gap-up and rallied. The upward movement extended on the ensuing trading session as well. However, after it registered an intra-week high of ₹74,222, the contract overturned the direction and fell back below the critical level of ₹72,500 and closed the week at ₹71,049, thereby under-performing gold.

Nevertheless, there are certain indications that give silver a bullish inclination. The price is above the 21-DMA, the price pattern since the beginning of May hints at positive bias and the RSI and the MACD remain in their bullish terrain. But the bullishness is not as strong as that is in gold. The average directional index (ADX), which demonstrates the strength of a buyers and sellers, is showing that the bulls hold advantage over bears.

Despite the above indications, it is recommended to wait until the July futures decisively breaks out of the resistance at ₹72,500. Once this happens, traders can go long. A clear breach of ₹72,500 in the coming week could lift the contract towards ₹75,000, which is an important level. If the contract moves past this level, it can rally to ₹77,500. From current levels, the supports are at ₹70,000 and ₹68,000.

Published on May 22, 2021

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