Commodity Calls

Short-term outlook remains bullish for gold

Gurumurthy K | Updated on January 12, 2018 Published on May 28, 2017


US jobs data this week needs a close watch as it may set the trend

Gold prices remained steady last week. Lack of fresh triggers kept the prices broadly range-bound for most part of the week. Though the global spot gold prices fell initially from around $1,263 per ounce, they found strong support at $1,248 and managed to bounce back in the later part of the week. The spot prices had closed in the green for the second consecutive week at $1,266 per ounce, up about 1 per cent for the week.

On the domestic front, the gold futures contract on the Multi Commodity Exchange (MCX) moved in tandem with global spot prices and had closed the week higher by 1 per cent at ₹28,888 per 10 gm.

Silver, on the other hand, outperformed gold by surging about 3 per cent last week. The global spot silver prices rose above the psychological resistance level of $17 per ounce and closed the week on a strong note at $17.31 per ounce. The MCX-Silver futures contract also surged 3 per cent last week and has closed at ₹40,091 per kg.

Data watch

The US Federal Reserve’s minutes of its May 3 meeting failed to provide support for the dollar to regain strength. It indicated that the Fed would wait to see the progress of the economy. It also reiterated that if the economic progress is in line with its expectations, it would be appropriate to hike rates. If the dollar strengthens, going forward, on the back of strong economic data, then gold can lose its sheen as a strong dollar is negative for gold prices.

The non-farm payroll and the unemployment rate on Friday will be the key data to watch for this week. A strong job number, coupled with improvement in employee wages, could strengthen the dollar. Apart from this, the US consumer confidence, personal income and Institute for Supply Management’s (ISM) manufacturing index are the other key data releases to watch during the week.

Dollar outlook

The dollar index was stuck in a narrow range between 96.8 and 97.5 last week. Support in the 97-96.5 zone is holding well at the moment. If the index manages to sustain above 97, a rise to 98 is possible in the coming days.

A further break above 98 will see the rally extending to 98.5 or even higher levels. Such a rise in the dollar index may slow down the pace of the up-move in gold prices.

On the other hand, the index will come under pressure if it declines below 96.8. Such a fall can drag it lower to 96.45 or even 96 which, in turn, will boost bullion prices.

Gold outlook

Spot gold price ($1,266 an ounce) outlook remains positive in the short term. A rise to $1,280 is possible in the coming days.

If gold price manages to surpass $1,280 decisively, it can surge to $1,300 thereafter. Inability to break above $1,300 can trigger a pull-back move to $1,280 once again.

A cluster of supports are poised in between $1,250 and $1,240 which can limit the downside.

Only a strong break below $1,240 will turn the outlook negative and drag the prices lower to $1,230 and $1,220 levels once again. But the price action on the daily chart reflects that the yellow metal lacks fresh sellers below $1,250 and a fall below the $1,250-1,240 support zone is less likely in the near term.

MCX-Gold (₹28,888 per 10 gm) has key supports at ₹28,600 and ₹28,400. A rise to test the next key resistances at ₹29,155 (200-day moving average), ₹29,325 (trendline) and ₹29,520 (55-week moving average) is likely in the coming days.

Inability to breach the 55-week moving average resistance can trigger a pull-back move to ₹29,000 or ₹28,800. But a strong break and a decisive close above ₹29,520 will increase the likelihood of the rally extending to ₹30,000 or even ₹30,200.

Silver outlook

Spot silver price ($17.31 an ounce) has strong supports at $17 and $16.8. Immediate resistance is at $17.5, which can be tested this week.

A strong break above this hurdle can take silver prices further to $17.75 in the coming days. But a reversal from $17.5 can pull the prices lower to $17. In such a scenario, silver should remain range-bound between $17 and $17.5 for some time. However, the outlook will turn negative if the price falls below $16.75. But such a break looks less probable.

MCX-Silver (₹40,091 per kg) has risen past a key resistance at ₹39,000. Near-term supports are at ₹39,500 and ₹39,300 while above these supports, a rise to ₹40,650 or even ₹41,100 can be seen in the coming days. A further break above ₹41,100 will increase the likelihood of the rally extending to ₹42,000 thereafter.

The outlook will turn negative for a fall to ₹38,000 only if the contract breaks below ₹39,000 decisively, which looks less likely.

Published on May 28, 2017
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