Bullion Cues. Gold breaks through key hurdle

Gold surged, breaking above $1,300 per ounce last week, in line with our expectation. The yellow metal went up 2.6 per cent last week and has closed at $1,325 per ounce — its first decisive close above the psychological $1,300 level since November 2016.

Increasing geo-political tensions between the US and North Korea aided the surge in gold prices last week. North Korea’s missile that flew over Japan before falling into the ocean increased the nervousness in the market. As a result, gold rallied due to its safe-haven status.

Silver, on the other hand, snapped the two consecutive weeks of narrow sideways move. It surged 3.9 per cent last week and has closed at $17.73 per ounce.

On the domestic front, both the gold and silver futures contract on the Multi Commodity Exchange (MCX), which were stuck in a narrow range in the previous two weeks, surged in tandem with the global spot prices last week.

The MCX-Gold contract closed at ₹29,823 per 10 gm, up 2.2 per cent for the week. MCX-Silver contract was up 2.6 per cent and closed at ₹40,021 per kg.

The US posted a strong growth in the second quarter. The US economy grew at 3 per cent, bettering the market expectation of a 2.7 per cent growth. The GDP number helped the dollar index to surge to a high of 93.35 during the week. However, the job numbers that were released on Friday failed to meet the market expectations.

The US non-farm payroll increased 1,56,000 in August as against the market expectation of an increase of 1,86,000. Wage growth also stayed stable at 2.5 per cent for the fifth consecutive month. Though the dollar index fell after this data release, it managed to bounce back from the low of 92.10 and has closed the week at 92.85. The dollar index has a resistance at 93.20. A strong close above this hurdle can take it higher to 94 in the coming days.

Though the on-going geo-political tensions might continue to push gold prices higher, a rally in the dollar index might slow down the pace of the upmove in the bullion.

Global spot gold ($1,325 per ounce) has an immediate resistance at $1,326. Inability to break above this hurdle can pull prices lower to $1,320 or $1,318 this week. The level of $1,318 is a key near-term support.

A strong break below it can drag gold lower to $1,310 or even $1,300 thereafter. But a further fall below $1,300 is unlikely as fresh buyers might emerge around this psychological support. An eventual break above $1,326 will clear the way for the next target of $1,340. A further break above $1,340 can take prices higher to $1,360 and $1,370 over the medium term.

The MCX-Gold (₹29,823 per 10 gm) futures contract has risen, breaking decisively above the key resistance at ₹29,450. The outlook is bullish with strong support in the ₹29,500-₹29,400 zone.

A strong break above ₹30,000 can take the contract higher to ₹30,320 — the 61.8 per cent Fibonacci retracement resistance initially. Inability to break above this hurdle can pull the contract lower to ₹30,000 or ₹29,800.

That said, a strong break above ₹30,320 will clear the way for the next target of ₹30,750. Traders with a medium-term perspective can go long on dips at ₹29,650. Accumulate dips near ₹29,500. Stop-loss can be placed at ₹29,200 for the target of ₹30,600. Revise the stop-loss higher to ₹29,400 as soon as the contract moves up to ₹30,300.

The global spot silver ($17.73 per ounce) has risen, breaking above the key resistance at $17.25. Key support is in the $17.5 and $17.25 region, which can limit the downside in the near term.

Immediate resistance is at $17.80. A strong break above it can take silver higher to $18.350 or even $18.50 in the coming weeks.

The MCX-Silver futures contract (₹40,021 per kg) has an immediate resistance at ₹40,115 — the 200-day moving average. A strong break above it can take the contract higher to ₹41,000. Further break above ₹41,000 will see the upmove extending to ₹42,000 or even ₹43,000 over the medium term.

The near-term outlook will turn negative only if the contract declines below ₹39,400. Such a break can take it lower to ₹38,900.

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