Will gold retain its range this week?

Akhil Nallamuthu BL Research Bureau | Updated on September 25, 2021

Silver can move up before re-aligning with medium-term downtrend

India certainly looks to be taking advantage of lower gold prices (spot price of gold on the Multi Commodity Exchange is down by 7.9 per cent year-to-date) and the recent data by the World Gold Council (WGC) substantiates the same. Imports hit a five-month high in August 2021 to 121.8 tonnes as retail demand strengthened, primarily due to the wedding season and restocking by retailers. This is more than double the 58.5 tonnes imported in August last year and 68 per cent higher compared to 72.3 tonnes in July 2021. Notably, the RBI added 14.9 tonnes in August, the highest monthly purchase since the central bank started purchasing frequently in December 2017. The RBI has added nearly 50 tonnes of gold to its reserves so far this year.

Going ahead, the WGC expects the imports to be healthy in September aided by further correction in the gold price. Gold jewellery exports, which increased three-fold between April and August this year, are likely to continue to grow as exports to major destinations like USA, Hong Kong and China can improve because of the economic recovery. Exports can get a boost from the proposed Free Trade Agreement with the UAE, a major gold jewellery export market. These factors can keep the demand from India sustainable in support of the price of the precious metal.

Regardless of the above, global gold and silver prices seem to be under pressure. Although there was an attempt at recovery, the upward push could not sustain as prices dropped towards the end of last week. Gold and silver, which were up by 0.8 and 1.3 per cent by mid-week, gave up gains and closed the week almost flat at $1,750.3 and $22.43 per ounce, respectively. Similarly, gold and silver futures on the MCX lost all intraweek gains and ended flat at ₹45,995 and ₹59,955 respectively.

MCX-Gold (₹45,995)

Bouncing off the support at ₹46,000, the October gold futures began last week on the front foot. The rally continued and the contract marked an intraweek high of ₹46,799 on Tuesday. While it traded at these levels for a couple of sessions, the uptrend abruptly lost momentum. Sellers then sharply pulled down the price of the futures. The price region of ₹46,800 and ₹47,000 seemed to present a resistance to the contract from recovering. The contract has a support band of ₹45,660-46,000.

While the trend can turn bullish only when the contract decisively breaches ₹47,600, the downward movement may be limited as well at the support band of ₹45,660 and ₹46,000. Also, the relative strength index (RSI) and the moving average convergence divergence (MACD) denotes a loss in downward momentum despite a sharp fall towards week end. The daily chart hints that the contract might get into a consolidation phase within ₹45,660 and ₹47,000 in the short run, meaning the next leg of trend depends on which side of this range breaks.

Until then, traders can consider range trading strategy with tight stop-loss. If the contract breaks down from ₹45,660, it will probably drop to ₹45,000 and then to ₹44,200. Alternatively, if it moves above ₹47,000, it can rise to ₹47,600. Next resistance is at ₹48,000.

MCX-Silver (₹59,955)

The December futures of silver on the MCX, after breaching key supports at ₹62,500 and ₹61,500 during the week before last week, looked well positioned to continue the path southwards. However, the contract found an unlikely support at ₹59,220 last week against which it rebounded. Even though the contract was unable to move above the support-turned-resistance level of ₹61,500, sellers could not influence the contract as much as they would have expected to do post a high volume break down.

While the medium-term trend continues to be bearish, there are hopes of a short-term recovery in price considering how the contract has moved over the past week. The RSI and the MACD on the daily chart are showing clear signs of bears weakening, at least in the near-term, which can lead to the price inching up towards ₹62,500. This is a crucial level. A recovery can result in the contract meeting a falling trendline, which can coincide at the resistance of ₹62,500. So, a recovery beyond this level can be difficult.

Keeping these factors in mind and that the medium-term trend is down, traders can wait and consider going short in the price band of ₹62,500 and ₹62,950, where the 21-day moving average currently lies. If this price area is rejected as expected, the contract can fall back to ₹61,500 and then retest the support at ₹59,220. Supports below this level are at ₹58,000 and ₹57,000. However, if the contract pierces through the barrier at ₹62,500, it will open up room for the contract up to ₹64,200. For the medium-term trend to turn bullish, the contract should invalidate the hurdle at ₹65,500.

Published on September 25, 2021

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