Commodity Calls

Safe haven demand lifts gold

Gurumurthy K | Updated on January 09, 2018 Published on August 20, 2017

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But the pull-back to $1,300/oz leaves open the possibility of prices falling further

Gold prices reversed sharply higher after falling initially in the past week. The global spot gold prices fell to a low of $1,268 per ounce on Tuesday and surged from there to test the psychological $1,300 mark for the first time since November 2016.

Gold gaining safe haven status on the back of the ongoing political uncertainty in the US and terror attack in Spain helped push the prices higher. However, the yellow metal failed to sustain higher as profit booking pulled the prices lower, from a high of $1,300.9 on Friday to close at $1,284 per ounce, down 0.4 per cent for the week.

Silver, on the other hand, touched a low of $16.58 per ounce on Tuesday before surging to a high of $17.32 on Friday.

It has come off from this high and closed at $16.97 per ounce, down 0.9 per cent for the week.

On the domestic front, both the gold and silver futures contracts on the Multi Commodity Exchange were broadly range-bound and closed the week on a mixed note.

The MCX-Gold futures contract was marginally down by 1 per cent and closed at ₹29,163 per 10 gm. The MCX-Silver futures contract closed at ₹39,063 per kg and was down 0.3 per cent.

Dollar struggles

The US dollar index (93.42) is unable to gain momentum to rise past 94 decisively. After testing 94 a few times repeatedly, the index fell in the past week from the high of around 94.15.

The immediate outlook for the index is unclear as it has been stuck between 93 and 94 over the last couple of weeks. A breakout on either side of 93 or 94 will decide the next move.

A fall below 93 can take the index lower to 92.5 and 92. A strong break below 92 will be bearish. Such a break will increase the likelihood of the index extending its fall to 90.5 or even lower thereafter. On the other hand, if the index manages to breach above 94 in the coming days, it can rise to 94.5 and 95. The pull-back from $1,300 in the global spot gold ($1,284 per ounce) prices is technically significant. It keeps the broad $1,200-$1,300 sideways range intact.

Gold has been stuck in this range since February. The inability to bounce above $1,290 from current levels can keep the prices under pressure.

In such a scenario, a fall to $1,270 or even $1,260 cannot be ruled out in the short term.

On the other hand, if gold breaks above $1,290, it can revisit $1,300 once again.

But a strong break and a decisive close above $1,300 are needed for it to gain fresh momentum.

Such a break can take the yellow metal higher to $1,325 thereafter.

The MCX-Gold (₹29,163 per 10 gm) futures contract dipped after testing the resistance at ₹29,450. A fall below ₹29,000 can take it lower to ₹28,500. But if it manages to sustain above ₹29,000, it can retest the ₹29,450 resistance.

A decisive break above this hurdle will then pave way for the next targets of ₹29,750 and ₹30,000

Silver outlook

The global spot silver ($16.97 per ounce) is facing resistance at $17.25. Below this resistance, a fall to $16.5 is likely in the coming days.

Further break below $16.5 can drag prices lower to $16.25 and $16 thereafter. Silver has to breach above $17.25 decisively to gain fresh momentum. Such a break can take it higher to $17.7 and $18.

On the domestic front, the MCX-Silver (₹39,063 per kg) will need a strong break above ₹39,500 in order to gain momentum. Such a break can take it higher to ₹40,000 and ₹40,200. But if it continues to trade below ₹39,500, a dip to test the immediate support at ₹38,700 is likely in the coming days.

A break below it can take it lower to ₹38,300. Further break below ₹38,300 will increase the likelihood of the contract extending its fall to ₹37,800 thereafter.

Published on August 20, 2017

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