Commodity Calls

Gold could appreciate to $1,700 this year

Akhil Nallamuthu BL Research Bureau | Updated on January 05, 2020 Published on January 05, 2020

The MACD indicator has started showing fresh upside momentum.

Calendar year 2019 saw gold advancing 18 per cent — the highest return since CY2010, when it had generated a return of nearly 30 per cent. Spot gold had been trading between $1,130 and $1,400 an ounce since 2014. Several attempts to invalidate the resistance at $1,400 was unsuccessful until recently. The 38.2 per cent Fibonacci retracement level of the previous down-move coincided with that level, making it more significant. However, after a sluggish start in 2019, the metal cracked the resistance in June.

Gold has established a strong uptrend following the breakout of the resistance at $1,400. The bullish outlook is corroborated by the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) indicator in the weekly chart. The RSI is showing a fresh uptick, indicating considerable strength in the bull trend.

Read the big story on Outlook for gold and base metals in 2020

The MACD indicator has started showing fresh upside momentum. Also, the price action continues to form higher peaks and higher troughs, an indication of a good upward momentum.

MCX

The spot gold in India returned a stellar 23.8 per cent in CY2019. This is the best performance by gold after CY2011, when it had achieved a return of nearly 32 per cent. This is the fourth consecutive year gold had produced positive returns.

While gold in dollar terms is yet to test its all-time high, the yellow metal in rupee terms breached its prior lifetime high at ₹35,074 per 10 grams in August last year. Noticeably, the RSI in the weekly chart has entered the over-bought territory. However, the MACD hints a fresh build- up in the bullish trend, and the long-term bull trend is still intact. Following the global trend, the price of gold in India can be expected to trend upward during the current year and in the long term.

Outlook

The outlook looks promising in the long term. While $1,550 can act as a hurdle, the prevailing momentum is expected to take the price beyond that level. Though gold faces a hindrance at $1,630, it can be expected to rally to $1,700 this year. In the long term, it can retest its previous lifetime high at $1,920 levels.

In rupee terms, gold can find ₹41,500 as a minor resistance, but it can appreciate to ₹43,000 this year. Considering that gold has achieved an annualised return of nearly 7 per cent since 2010, the price appreciating to ₹43,000 is a possibility. In the long term, it can gradually advance to the ₹50,000 mark with intermediate corrections.

Published on January 05, 2020
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