Commodity Analysis

The yellow metal can remain range-bound

Gurumurthy K | Updated on April 29, 2018 Published on April 29, 2018

Gold prices have fallen for the second consecutive week. The global spot gold prices fell 1.5 per cent intra-week to reach a low of $1,315 per ounce. The prices have, however, recovered slightly from this low and closed the week 0.9 per cent lower at $1,324 per ounce.

Silver, which outperformed gold in the previous week, was knocked down this past week. The global spot silver prices tumbled 3.6 per cent in the past week and closed at $16.51 per ounce.

On the domestic front, the gold and silver futures contract on the Multi Commodity Exchange fell in tandem with the global prices.

The MCX-Gold futures contract was down marginally by 0.7 per cent last week. It closed at ₹31,211 per 10 g. On the other hand, the MCX-Silver futures contract plummeted 3.6 per cent in the past week and closed at ₹39,004 per kg.

Two major factors have been dragging the bullion prices lower over the past couple of weeks. First is the rising US Treasury yields. The US 10-year Treasury yield surged over 3 per cent last week. This helped the dollar index breach the key level of 91 and rally to test 92 levels in the past week. Higher yields and a strong dollar took the sheen off from gold, and dragged it lower last week.

The second factor that kept the gold prices under pressure was easing geo-political tensions in the Korean peninsula.

Dollar outlook

The crucial resistance level of 92 halted the strong rally in the dollar index (91.54) last week. A long-term trendline as well as the 200-day moving average resistances are poised around 92. The index made a high of 91.98 and came off from there to close at 91.54, up 1.4 per cent for the week. Immediate support is at 91.40, a break below that can again take the index lower than 91. This can give a temporary breather to gold price. The yellow metal can recover slightly in such a scenario. However, a further fall below 91 in the dollar index is less probable at the moment. As such, the upside in gold could be restricted in the short term. The dollar index can remain range-bound between 91 and 92 with a bullish bias. An eventual break above 92 will increase the likelihood of the index rallying to 93.

Gold outlook

The global spot gold ($1,324 per ounce) has a support at $1,317 and resistance at $1,340. A range-bound move between these two levels is likely, and a breakout on either side of $1,317 or $1,340 will determine the next move. A strong break above $1,340 will increase the likelihood of the prices rallying to $1,355 and $1,360. On the other hand, if gold declines below $1,317, the prices can fall to $1,310 or $1,305.

On the domestic front, the MCX-Gold (₹31,211 per 10 g) has key supports near current levels at ₹31,090 and at ₹31,000. Though a test of these supports cannot be ruled out in the near term, a break below ₹31,000 looks less probable. An upward reversal from these supports can take the contract higher to ₹31,400. A further break above ₹31,400 will pave way for the next targets of ₹32,000 and ₹32,200.

Traders with a medium-term perspective can go long on dips at ₹31,150 and at ₹31,050. Stop-loss can be placed at ₹30,600 for the target of ₹32,000. Revise the stop-loss higher to ₹31,250 as soon as the contract moves up to ₹31,430.

Silver outlook

The global spot silver ($16.51 per ounce) has immediate support at $16.40. A break below that can drag it lower to $16.20 or even $16.10. On the other hand, if silver manages to sustain above $16.4, it can bounce back to $16.90. A strong break above $16.90 will pave way for the next targets of $17.25 and $17.50.

On the domestic front, the MCX-Silver (₹39,004 per kg) hovers above a crucial support level of ₹39,000. If it manages to bounce from current levels, an up move to ₹40,000 and ₹40,200 is likely again. But if the contract declines below ₹39,000, it can fall to ₹38,650. Further break below ₹38,650 can drag the contract to ₹38,000 or even lower thereafter.

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