Commodity Analysis

Gold bounces from a key support

Gurumurthy K | Updated on June 24, 2018 Published on June 24, 2018

But key short-term resistances can keep the prices subdued

Gold continues to remain under pressure. Last week, the global spot gold prices tumbled, breaking below the key support level of $1,275 per ounce to make a six-month low of $1,261.5 per ounce. However, it managed to bounce from the low and recover some of the loss.

The yellow metal closed the week at $1,270 per ounce, down 0.7 per cent for the week.

On the domestic front, gold futures contract on the Multi Commodity Exchange (MCX) was beaten down more than the global spot prices. The contract was down 1.3 per cent and closed the week at ₹30,610 per 10 gm.

The Indian rupee recovering sharply above 68 towards the end of the week, dragged down the MCX futures contract.

Dollar eases

A pull-back in the US dollar index towards the end of the week helped gold to recover from its low. The dollar index made a high of 95.53 on Thursday and has come-off from there to close the week at 94.52.

The price action on the chart signals that the dollar index lacks fresh buyers to take it decisively above 95. As long as the index remains below 95, a dip to 94 is likely in the near term. A break below 94 will then increase the likelihood of the index falling to 93 over the short term. Such a fall will ease the pressure on gold and can trigger a relief rally.

Broadly, the dollar index can remain range-bound between 93 and 95 for some time. A breakout on either side of 93 or 95 will decide the next trend.

Gold outlook

The bounce in the global spot ($1,270 per ounce) price from last week’s low of $1,261.5 is technically significant. Though it has given some relief to the prices, significant resistances at $1,278 and at $1,290 can cap the upside in the short term. If gold manages to breach $1,278, an up-move to $1,290 is possible. But further rally beyond $1,290 looks unlikely at the moment.

A pull-back from these resistances can drag gold lower to $1,258 in the short term.

If gold breaks below $1,258 decisively, the prices can tumble towards $1,240 in the coming weeks. The levels of $1,258 and $1,240 are strong supports for gold. The current downtrend is likely to halt at either of these levels and a trend reversal may be on the cards.

On the domestic front, the MCX-Gold (₹30,610 per 10 gm) came off sharply last week, breaking below the psychological support level of ₹31,000. The contract has been broadly range-bound between ₹30,500 and ₹31,500. If it manages to reverse higher, the sideways range will remain intact and a rally to ₹31,200 and ₹31,500 is possible. But if the contract breaks below ₹30,500, a fall to ₹30,100 or ₹30,000 is likely in the short term.

Silver outlook

The global spot silver prices have reversed higher after making a low of $16.2 per ounce in the past week. The prices have bounced from this low to close the week at $16.45. This keeps the broader sideways range intact. An up-move to $16.6 or $16.7 looks likely in the coming days.

A strong break above $16.70 will boost the momentum. This will take silver higher to $17 and $17.2 levels again. The prices will come under pressure only if it breaks below $16.20 decisively. Such a break can drag silver lower to $16 or $15.95 thereafter. The MCX-Silver (₹39,796 per kg) fell sharply about 2 per cent intra-week to make a low of ₹39,391 last week.

The contract has, however, bounced back from this low, easing the downside pressure. Immediate support is at ₹39,500. If the contract manages to sustain above this support, a test of ₹40,000 is likely. A strong break above ₹40,000 will then pave way for a fresh rally to ₹41,000 over the short term.

On the other hand, if the MCX-Silver futures contract breaks below ₹39,500, it can fall to ₹39,200 or ₹39,000. Further break below ₹39,000 will then increase the likelihood of the contract falling towards ₹38.600.

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