Commodity Analysis

Gold could consolidate in the near term

Gurumurthy K | Updated on March 17, 2019 Published on March 17, 2019

A breakout on either side of $1,290 or $1,310 will decide the next move

Gold was volatile the past week. The global spot gold prices surged in the initial part of the week to make a high of $1,311 per ounce. The prices fell back to test the key support level of $1,290 and bounced again on Friday to close at $1,302 per ounce, up 0.32 per cent for the week.

Silver, on the other hand, made a high of $15.54 per ounce and tumbled from there, giving back all the gains. The prices fell to a low of $15.14 before closing at $15.29 per ounce, down 0.3 per cent for the week.

On the domestic front, the gold and silver futures contract on the Multi Commodity Exchange (MCX) traded under pressure all through the week. A strong rupee weighed on the domestic bullion prices. The rupee strengthened against the dollar, breaking above the key level of 70 and closed the week 1.5 per cent higher. This dragged both the gold and the silver prices on the MCX sharply lower last week.

The MCX-Gold futures contract was down 1 per cent last week. It closed at ₹31,826 per 10 gm. The MCX-Silver contract tumbled 1.7 per cent and closed the week at ₹38,087 per kg.

Gold outlook

Gold ($1,302 per ounce) is stuck in between its support at $1,290 and resistance at $1,313. The yellow metal can continue to consolidate in a sideways range between $1,290 and $1,313 in the first half this week at least until the US Federal Reserve meeting on Wednesday.

The outcome of the Fed meet could be a trigger for gold to break the $1,290-1,313 range, which will then determine the direction of the next move.

If gold breaks below $1,290, it can fall to $1,283 or $1,278. A further break below $1,278 will then increase the likelihood of gold moving further lower to $1,275 or even $1,270.

On the other hand, if gold manages to breach $1,310, it will gain fresh momentum. Such a break will then pave the way for a fresh rally to $1,320 and $1,330 over the short term.

On the domestic front, the MCX-Gold (₹31,826 per 10 gm) has been volatile between ₹31,750 and ₹32,320 for more than a week. A breakout on either side of ₹31,750 or ₹32,320 will determine the next move.

A break below ₹31,750 will keep the down-trend intact. It will increase the downside pressure and drag the contract lower to ₹31,230 in the coming weeks. On the other hand, if the contract breaks above ₹32,230, the downside pressure will ease. Such a break will trigger a relief rally to ₹32,500 and ₹32,750.

Silver outlook

Silver ($15.29 per ounce) closed on a mixed note. The outlook is unclear. Silver has a support at $15 and a resistance at $15.60. A range-bound move between $15 and $15.60 can be seen for some time. A breakout on either side of $15 or $15.6 will decide the next move.

A strong break above $15.6 can take silver higher to $16.1 and $16.25 in the coming weeks. On the other hand, if silver declines below $15, it can dip initially to $14.85. A further break below $14.85, though unlikely, will increase the downside pressure. In such a scenario, silver will be in danger of tumbling to $14.5 or even $14 over the medium term.

The MCX-Silver (₹38,087 per kg) has been trading volatile between ₹37,800 and ₹39,000 over the last couple of weeks. The bias on the weekly chart is negative. As long as the contract trades below ₹39,000, there is a strong likelihood of it falling to ₹37,000 in the short term. A further break below ₹37,000 will increase the downside pressure and see the contract tumbling towards ₹36,000 and ₹35,500.

The contract will get a breather if it manages to breach ₹39,000. Such a break will then pave the way for the next targets of ₹39,500 and ₹40,000.

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