Commodity Calls

UK polls, dollar take sheen off gold

Gurumurthy K | Updated on January 12, 2018 Published on June 11, 2017



Fed meeting outcome will decide whether prices move up from the current levels

As expected, gold witnessed a sharp rise initially last week. But after marking an intra-week high of $1,296 per ounce, prices reversed sharply.

The trigger for this sudden downward reversal might have come from crude oil prices tumbling over 4 per cent on Wednesday. The US dollar strengthening towards the end of the week increased the downside pressure on gold and dragged the prices to close the week lower by 1 per cent at $1,266 per ounce.

Silver, on the other hand, faced resistance near $17.75 per ounce and tumbled to close the week at $17.21 per ounce, down 2 per cent for the week.

On the domestic front, both the gold and silver futures contract on the Multi Commodity Exchange (MCX) moved in tandem with global spot prices and reversed sharply lower from their respective intra-week highs.

From a high of ₹29,585 per 10 gm, the MCX Gold contract closed 0.5 per cent lower for the week at ₹29,019 per 10 gm on Friday. MCX-Silver, on the other hand, dropped from the week’s high of ₹40,842 per kg and closed at ₹39,694 per kg, down 1.4 per cent for the week.

UK elections boost dollar

The dollar index (97.28) found support around 96.50 and reversed higher to close the week at 97.28. This is thanks to the UK elections resulting in a hung parliament. The dollar index, which was trading on a weak note until Thursday, gained strength on Friday after the UK election results were out.

Technically, this upward reversal on the dollar index is significant as it happened from near a key Fibonacci retracement support level of 96.45.

The weekly chart suggests a range bound move between 96.5 and 98 for some time. A breakout on either side 96.5 or 98 will decide the next trend.

Watch the Fed

The trigger for the dollar index to break this 96.5-98 range may come from the US Federal Reserve meeting this week on Wednesday. A 25-basis point hike is widely anticipated. The US dollar may come under pressure if the Fed surprises with no rate hikes or changes its stance on future projections. If the dollar index declines below 96.5 decisively this week, it can fall to 96 immediately. Further break below 96 will increase the likelihood of the index extending its fall to 95.

On the other hand, if the index breaks the range above 98, a rise to 99 and 99.3 is possible thereafter.

Gold outlook

Global spot gold ($1,266 per ounce) has an immediate support at $1,265. A break below it can take the prices lower to $1,260 or $1,258 which is the next key support zone.

The US Fed meeting outcome may decide whether gold prices reverses higher from the $1,260-$1,258 support zone or not.

An upward reversal from this support zone may ease the downside pressure and take the prices higher to $1,273. Further break above $1,273 will see the upmove extending to $1,280.

On the other hand, if gold declines below $1,258, it can fall to $1,247 or $1,245. But such a fall looks less probable as the $1,250-$1,248 support zone seems to be very strong. This leaves the possibility high of gold prices reversing higher from this support zone in the coming days.

On the domestic front, the MCX-Gold (₹29,019 per 10 gm) futures contract has cluster supports in between ₹29,000 and ₹28,750.

The 21-day moving average, which is on the verge of crossing over the 55- and 100-day moving average, indicates that further downside in the contract could be limited. A reversal from the ₹29,000-₹28,750 support region may see a rally to ₹29,500 levels once again.

The contract will come under pressure only if it declines below ₹28,750 decisively. Such a break can take it lower to ₹28,500 initially. A break below ₹28,500 may drag the contract further lower to ₹28,100 or ₹28,000.

Silver outlook

Global spot silver ($17.21 per ounce) can extend its fall to test the next key supports at $17 and $16.82. A strong reversal from either $17 or $16.82 can take silver prices higher to $17.75 or $17.80 once again.

But a fall below $16.82 can drag the prices lower to $16.60 or $16.40 thereafter.

Silver must breach $17.80 decisively to gain fresh momentum. Such a break can take it higher to $18.5.

MCX-Silver (₹39,694 per kg) has an immediate support at ₹39,400. A strong break below it can take it lower to ₹38,450 in the short term. On the other hand, if the contract manages to reverse higher from ₹39,400 it may bounce back to ₹40,600 or even ₹41,000 thereafter.

Published on June 11, 2017
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