Bullion Cues. Worst seems to be over for gold

Gold has been gaining sheen since 2016 amid all the noise about the US Federal Reserve hiking rates and other major central banks gearing up to tighten their monetary policy.

The yellow metal was on a multi-year downtrend from its all-time high of $1,921 per ounce recorded in 2011. This downtrend, which was in place for more than four years, halted at a low of $1,046 per ounce in December 2015. The bounce-back move since then indicates that the downtrend has ended.

Additionally, gold managing to sustain above $1,200 since February this year strengthens the case for a trend reversal. As such, technically, gold has just begun a fresh, long-term uptrend (currently at $1,303/ounce).

The level of $1,370 is crucial. A strong break and a decisive monthly close above this hurdle will confirm the trend reversal.

Such a break can take the yellow metal higher to $1,415 and $1,450 initially. A pull-back from $1,450 can take the prices lower to $1,400 or $1,370.

But a further fall below $1,370 might be less probable. An eventual break above $1,450 will increase the likelihood of gold targeting $1,590 in the coming months. Immediate support is in the $1,260-$1,225 zone. The next crucial support is in between $1,190 and $1,185. The bullish outlook mentioned above to target $1,590 will get negated only if gold breaks below $1,185 decisively. Such a break, though unlikely, may drag gold lower to $1,100 or $1,070.

The dollar index can remain range-bound between 91 and 94 and a breakout on either side of 91 or 94 will determine the next move. A break below 91 can take the index lower to 90 or 89.5 initially.

A further break below 89.5 can drag the index further lower to 87.8. Such a fall will also leave the possibility high of the index tumbling to 85.5 over the medium term. On the other hand, if the dollar index breaks above 94, it can rally to 96 or 97.

The impact of a rally in the dollar index might cap the upside in gold. However, this could be a short-term phenomenon as gold in itself is looking very strong.

Barring the spike to ₹35,000 per 10 gm in 2013, the gold futures contract on the Multi Commodity Exchange (MCX) has been broadly range-bound between ₹24,500 and ₹32,500 since late 2011. Within this range, the medium-term outlook is bullish. It is currently trading at ₹29,851 per 10 gm.

Key supports are at ₹29,250 and at ₹28,900. As long as the contract trades above these supports, a rally to ₹32,000 and ₹32,500 is possible. Intermediate resistance is at ₹31,300, inability to break above it on the first attempt may trigger a corrective fall to ₹30,500 or ₹30,100. However, an eventual break above ₹31,300 will pave the way for ₹32,000 and ₹32,500. If the contract manages to break above ₹32,500, it can target ₹33,400. Further break above ₹33,400 will increase the likelihood of the contract targeting ₹36,000 over the long term. The region between ₹28,000 and ₹27,500 is a crucial support zone. The outlook will turn negative for a fall to ₹26,000 only if the contract breaks below ₹27,500. However, such a fall looks less probable at the moment.

Also, the Indian rupee, which is more likely to weaken towards 66 or even lower as long it trades below 64, may also aid in limiting the downside in the contract.

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