Commodity Calls

Gold remains under pressure

Gurumurthy K | Updated on January 08, 2018 Published on October 01, 2017

Natykach Nataliia/shutterstock.com   -  Natykach Nataliia/shutterstock.com

Positive dollar index leaves room for further fall in bullion prices in the short term

Gold prices fell for the third consecutive week. Though the prices surged initially above $1,300 per ounce, they failed to sustain above this psychological level. The yellow metal touched a high of $1,313.7 per ounce on Tuesday and fell sharply from there to $1,276 before closing the week lower by 1.4 per cent at $1,279.7. The strong dollar dragged gold prices lower.

Silver, on the other hand, reversed sharply lower, after recording a high of $17.25 per ounce. It closed at $16.65 per ounce, down 2 per cent for the week.

Silver looks much weaker, relative to gold, after falling sharply over the last three weeks.

On the domestic front, a weak rupee minimised the losses in the gold and silver futures contract on the Multi Commodity Exchange (MCX). The Indian rupee fell to a low of 65.89 and recovered from there in the later part of the week.

The MCX-gold futures contract surged to a high of ₹30,169 per 10 gm on Tuesday and reversed lower, giving back all the gains. The contract closed on a flat note for the week at ₹29,557 per 10 gm, down 0.1 per cent for the week. MCX-Silver touched an intra-week high of ₹40,595 per kg and fell back from there to close the week 0.7 per cent lower at ₹39,457 per kg.

Rate hike weighs

The increased possibility of a rate hike in the US in December is weighing on bullion prices. The third and final estimate showed that the US grew at 3.1 per cent (revised higher from 3 per cent earlier) in the second quarter this year. The US GDP data release last week has reinforced the hopes for the next rate hike by this year end.

A strong rise in the non-farm payroll numbers could boost the sentiment further on the rate hike front. In such a scenario, gold prices might get beaten down further.

Dollar outlook

The dollar index surged, breaking above the key resistance level of 92.81 and recorded a high of 93.66. The index has come off from this high, to close the week at 93.

The region between 92.8 and 92.7 is a key support, which can limit the downside in the near term. Though these levels might be tested, a fall below 92.7 is less likely.

An eventual reversal from the 92.8-92.7 support zone will increase the likelihood of the index rallying to 94.2 in the short term.

The positive outlook for the dollar index suggests that gold and silver can fall further in the coming days.

Outlook

Gold: Global spot gold ($1,279 per ounce) has support at $1,270 which is likely to be tested in the coming week.

If it manages to reverse higher from there, a relief rally to $1,290 or $1,300 is possible.

But a strong fall below $1,270 will increase the likelihood of gold extending its fall to $1,260 or even $1,250.

The psychological level of $1,300 is a key resistance which has to be breached for the outlook to turn positive.

The MCX-gold (₹29,557 per 10 gm) futures contract has a strong support in the ₹29,300-₹29,280 zone, which can limit the downside. An upward reversal after testing this support zone in the coming days can take the contract higher to ₹30,100 again.

A decisive weekly close above ₹30,100 will pave the way for the next target of ₹31,000 over the medium-term. Traders with a medium-term perspective can go long on dips at ₹29,350.

Stop-loss can be placed at ₹28,750 for the target of ₹30,500. Revise the stop-loss higher to ₹29,500 as soon as the contract moves up to ₹29,850.

Silver: As mentioned above, the global spot silver ($16.66 per ounce) looks much weaker than gold.

With resistance at $16.90, a fall to $16.10 or $15.90 cannot be ruled out in the coming days. Silver has to breach above $17 decisively to ease the downside pressure and turn the outlook positive.

The MCX-Silver (₹39,457 per kg) can fall to test its support at ₹38, 980.

A bounce from this support can take it higher to ₹40,000. But a strong break below ₹38,980 can drag it to ₹38,400.

Published on October 01, 2017

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