Commodity Analysis

Gold can consolidate in a range

Gurumurthy K | Updated on July 14, 2019 Published on July 14, 2019

The dollar’s weakness helped gold cross the $1,400-mark

Gold prices managed to claw-back after declining in the initial part of the week. The global spot gold prices fell to a low of $1,386 per ounce and reversed sharply above the psychological level of $1,400. Gold surged to a high of $1,427 and came-off slightly from there to close the week 1.2 per cent higher at $1,415.75 per ounce.

The US Federal Reserve hinting for a rate cut in the near future helped gold prices reverse higher in the past week.

Silver, on the other hand, traded high all through the week. The global spot silver prices were up 1.5 per cent for the week and closed at $15.22 per ounce.

On the domestic front, the gold and silver futures contract on the Multi Commodity Exchange (MCX) moved in tandem with the global prices. The MCX-Gold futures contract closed the week at ₹34,905 per 10 gm and was up 0.9 per cent for the week. The MCX-Silver futures contract surged over 2 per cent to close the week at ₹38,390 per kg.

Rate cut boost

The US Federal Reserve Chairman in his testimony last week said that the central bank will act appropriately to sustain growth. This strengthened the case for a rate cut from the Fed in the near future, most probably in its meeting this month on July 31. However, the inflation data showed a pick-up in the US inflation in June. The US Core Consumer Price Index (CPI) inflation increased by 2.1 per cent (Y-o-Y) in June from 2 per cent in the previous month. This data follows the strong job numbers released earlier this month. The data releases so far from the US suggests that even the Fed reduces the rates this month itself, in line with market expectations, the pace of cut may not be as aggressive as the market expects.

Dollar: beaten down

The Fed Chairman hinting for a rate cut dragged the US dollar index sharply lower last week. The dollar index, which began the week on a positive note, was beaten down after the Fed strengthened the case for a rate cut. The dollar index tumbled from its high around 97.60, giving back all the gains made during the week and closed 0.5 per cent lower at 96.81. As long as the index remains below 97, the near-term outlook will be negative. The index can fall to 96.5 or even 96 in the coming days. Such a fall in the dollar index can take gold prices further higher.

Gold outlook

The bounce above $1,400 last week has reduced the danger of gold declining below $1,380. The global spot gold ($1,415.75 per ounce) can consolidate between $1,380 and $1,440 for some time.

A breakout on either side of $1,380 or $1,440 will determine the direction of the next move. On the charts, the bias is bullish for gold to breach $,1440 and rise to $1,480 in the coming weeks. The bullish outlook will get negated only if gold declines below $1,380. Such a break, though less probable, can drag gold lower to $1,360 and $1,350.

The MCX-Gold (`34,905 per 10gm) is getting good support near ₹34,300. The outlook is bullish. A strong break above ₹35,000 is needed to gain momentum. Such a break can take the contract higher to ₹35,350 and ₹35,500. But inability to breach ₹35,000 can keep the contract range-bound between ₹34,300 and ₹35,000 for some time. The outlook will turn negative if the contract declines below ₹34,300. In such a scenario, the MCX-Gold futures contract can fall to ₹33,750.

Silver outlook

The global spot silver ($15.22 per ounce) can consolidate between $14.90 and $15.40 in the near term. This bias is positive to see a break above $15.40 eventually. Such a break can take silver up to $15.50 initially.

A further break above $15.50 will then boost the momentum and pave way for a fresh rally to $15.75 and even $16 . Silver will come under pressure if it declines below $14.9. In such a scenario, a fall to $14.70 is possible.

The outlook for the MCX-Silver (`38,390 per kg) is bullish. The contract has support at ₹37,750, which can limit the downside. A strong break above the immediate resistance level of ₹38,500 will take the contract higher to ₹39,000 and ₹39,200 in the coming days. The bullish outlook will get negated if the contract declines below ₹37,750. In such a scenario, the contract can fall to ₹37,200 and ₹37,000. But such a fall looks less likely.

The writer is a Chief Research Analyst at Kshitij Consultancy Services

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