Gold bounces back after seven-week fall

And hints at the possibility of a relief rally

After falling for seven consecutive weeks, gold got a breather finally last week. The yellow metal reversed sharply higher to make its first positive weekly close since July.

The global spot gold prices began the week on a positive note and tested the psychological $1,200 per ounce mark in the middle of the week. Though the prices reversed lower to make a low of $1,183, the downmove was short-lived.

Gold recovered from the low and reversed sharply higher to close the week 1.8 per cent higher at $1,205.

On the domestic front, the gold futures contract on the Multi Commodity Exchange (MCX) moved in tandem with the global prices. The MCX-Gold futures contract surged 1.9 per cent and closed the week at ₹29,903 per 10 gm.

Easing tension

Trade talk between the US and China gave a relief to the market in the initial part of the week. It dragged the US dollar index about 1.5 per cent lower from a high around 96.4 to a low 94.93 in the first part of the week.

Though the index managed to reverse from this low, the US Federal Reserve Chairman Jerome Powell’s speech on Friday played a spoil-sport.. The Fed Chairman saying that gradual increase in interest rate is appropriate, gave a hint to the market that the US may continue with the current rate hike plan and will not increase the pace. The dollar index fell back again on Friday and triggered a sharp rally in gold and helped it to recover from the week’s low of $1,183 and close the week on a positive note.

Dollar outlook

The volatile oscillation between 95 and 97 over the last three week leaves the near-term outlook mixed for the US dollar index. If the index (95.15) manages to sustain above 95, it can move up to 96.5 or 97 in the coming days. Such a bounce can cap the upside in gold and drag the prices lower.

On the other hand, if the dollar index declines below 95, a fall to 94 is possible. In such a scenario, gold can sustain above $1,200 and can move higher in the coming days.

Gold outlook

The global spot gold ($1,205 per ounce) has an immediate support at $1,200 and then key supports in the $1,195-1,190 region. The price action on the chart suggests that gold is likely to sustain above $1,190 and a fall below this level is less probable.

As such, there is a strong likelihood of the current upmove extending to $1,220 in the near-term. A strong break above $1,220 will then increase the likelihood of the contract targeting $1,230 and $1,240 thereafter.

The yellow metal will come under pressure again only if it breaks below $1,190 decisively. Such a break can drag it to $1,180 or even lower.

On the domestic front, the near-term outlook for the MCX-Gold (₹29,903 per 10 gm) futures contract is positive. The contract has sustained well above ₹29,500 last week. Key supports are at ₹29,775 and ₹29,500 which are likely to limit the downside.

A rally to ₹30,100 or ₹30,250 is likely in the near-term. A strong break above ₹30,250 will then pave way for the next target of ₹30,600.

The contract will come under pressure only if it breaks below ₹29,500 decisively. Such a break can drag it to ₹29,200 or ₹29,000 .

Silver subdued

Silver under-performed in the past week compared to gold. The global spot silver prices closed the week at $14.82 per ounce and were up just 0.11 per cent. The MCX-Silver futures contract was up 0.6 per cent for the week. It has closed at ₹37,004 per kg.

 

The weekly candle pattern of the global spot silver reflects indecisiveness in the market. It also leaves the immediate outlook unclear for silver. Cluster of resistances are poised in between $14.8 and $15. Silver is likely to gain momentum only if it breaks above $15 decisively. Such a break will boost the momentum and will take the prices higher to $15.25 and $15.5. Support is at $14.5. A strong break below it will increase the likelihood of the prices falling to $14.25 and $14.

The MCX-Silver (₹37,004 per kg) was range-bound between ₹36,500 and ₹37,200. A break above ₹37,200 can take it higher to ₹37,600 initially.

A strong break and a decisive close above ₹37,600 will ease the downside pressure and will pave way for ₹38,200 and ₹38,500.

On the other hand, if the contract declines below ₹36,500 it can fall to ₹36,000.

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