Commodity Analysis

Dollar continues to pressure gold

Gurumurthy K | Updated on January 09, 2018 Published on October 29, 2017

But charts suggest that supports could limit further fall in the yellow metal

Gold extended its downmove for the second consecutive week. The global spot gold price fell to an intra-week low of $1,263.85 per ounce and managed to bounce from there to close at $1,273.35, down 0.6 per cent for the week. Silver, on the other hand, made a low of $16.61 per ounce before closing the week 1 per cent lower at $16.87.

On the domestic front, the gold futures contract on the Multi Commodity Exchange (MCX) was down 0.8 per cent. The contract has closed the week at ₹29,318 per 10 gm. The MCX-Silver futures contract was hit harder. The contract was down 1.8 per cent for the week and has closed at ₹39,149 per kg.

Dollar surges

Strong dollar continued to weigh on the bullion prices. The outcome of the European Central Bank (ECB) meeting on Thursday saw the dollar index surging 1.3 per cent from around 93.5 to 94.7 that day. As was widely anticipated, the ECB announced to taper the quantitative easing from January by cutting its bond purchase to €30 billion from the current levels of €60 billion. It said that the bond purchase will continue till September 2018 and left the doors open to extend it further if required. The euro tumbled against the dollar after the ECB meeting, thereby pushing the dollar index higher.

The dollar index, which was hovering below the key resistance level of 94 until then, surged breaking above it to make a high of 95.15 on Friday. The level of 94 will now serve as a strong support for the dollar. As long as the index sustains above 94, a rally to 96 or even 96.5 is likely. Strong dollar could continue to keep the yellow metal price under pressure in the coming weeks.

Gold outlook

Although the dollar index is strong, gold ($1,273 per ounce) is not looking very weak on the charts. This indicates that there is a possibility of a divergence to emerge between gold and dollar. The price movement in the coming days would give a clear confirmation on the same. But as long as gold sustains above the key support level of $1,260 further fall is unlikely. A rise to $1,282 or $1,286 looks likely. Further break above $1,286 can target $1,300 thereafter. But a pull-back from $1,286 may take the price lower to $1,260 again and keep gold in a sideways range between $1,260 and $1,286 for some time.

The yellow metal will come under pressure only if it breaks below $1,260 decisively. Such a break can drag the price lower to $1,250 or $1,245. The region between $1,245 and $1,240 is a key support that is likely to limit the downside in the short-term.

The MCX-gold (₹29,318 per 10 gm) futures contract hovers above the key support level of ₹29,200.

As long as it sustains above this support, a bounce back move to ₹29,600 is possible in the near term. A break above ₹29,600 will then pave way for the next target of ₹29,900 and ₹30,100.

On the other hand, the contract will come under pressure if it breaks below ₹29,200. The next targets are ₹29,100 and ₹29,000. Further break below ₹29,000 will increase the likelihood of the downmove extending to ₹28,850 or even lower.

Silver outlook

The global sport silver ($16.87 per ounce) has key resistance at $17.1. Inability to break above this hurdle can keep it pressured on the downside for a fall to $16.45. A break below $16.45 can drag silver lower to $16.

On the other, if silver manages to breach above the immediate resistance at $17.1, it can rise to $17.25 or $17.50. A strong break above $17.5 will boost the momentum and take silver higher to $18 thereafter.

The MCX-Silver (₹39,149 per kg) tested the key support level of ₹38,950 last week and has bounced slightly from there. Whether the contract sustains above ₹38,950 or not will decide the trend for this week. A break below ₹38,950 can drag it to ₹38,000. But while it remains above ₹38,950, it can bounce to test ₹39,450 initially. Further break above ₹38,950 will pave way for the next targets of ₹40,000 and ₹40,500.

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