Commodity Analysis

Gold falls on easing trade tension

Gurumurthy K | Updated on April 01, 2018 Published on April 01, 2018

Supports can limit the downside but the yellow metal could remain volatile

Gold prices reversed lower sharply last week after a robust rally in the earlier week. Though the yellow metal began the week on a positive note, it failed to gain momentum, breaching key resistance at $1,355 per ounce.

Global spot gold prices made a high of $1,357 per ounce on Tuesday and have come off sharply from there. The US-China trade war eased a bit after reports of a possible re-negotiation of the tariffs imposed on Chinese exports. This triggered a sharp bounce-back move in the dollar index which, in turn, pulled down gold, which fell to a low of $ 1,321.31 before closing the week at $ 1,325.5.

Silver, on the other hand, tumbled in the past week more than gold as always. Global spot silver prices made a high of $16.81 per ounce and reversed sharply lower to close the week at $16.37 per ounce, down 1.2 per cent.

On the domestic front, a weak rupee limited the loss in the gold and silver futures contract on the Multi Commodity Exchange (MCX). The MCX-Gold futures contract made a high of ₹30,929 per 10 gm on Monday and has come off from there to close the week at ₹30,408 per 10 gm.

The MCX-Silver futures contract closed the week at ₹38,322 per kg.

Uncertainty in the global markets could keep the sentiment mixed in the coming week. Also, gold could remain volatile as markets head towards key US unemployment and non-farm payroll numbers data due on Friday.

Though the dollar index has reversed higher from its support around 89, the outlook remains mixed. The index is broadly range-bound between 89 and 90.5. Within this range, a test of 90.5 — the upper end of the range — is likely in the near term. Inability to break above 90.5 can drag the dollar index lower to 90 and 89.5 again. Such a fall can trigger an upward reversal in gold prices. But if the dollar index manages to breach 90.50 decisively, it can gain fresh momentum and rise to 91 initially.

A further break above 91 will see the upmove extending towards 91.7 or even 92, going forward. In that scenario, gold prices may remain subdued and can dip further in the coming days.

Gold outlook

The pull-back move in the global spot gold prices ($1,325.5 per ounce) from the high of $1,357 keeps the broader $1,300-$1,370 sideways range intact. Within this range, there is a strong likelihood of gold moving down towards $1,310 or $1,305 in the near term.

An upward reversal from the $1,305-$1,300 support zone will keep gold in the sideways range for some more time. In such a scenario, gold can rise back to $1,330 and $1,350 levels in the short term. But if it breaks below $1,300, it can come under pressure and fall to $1,290 or $1,285. However, a broader bias remains positive and gold prices falling below $1,300 is less probable.

On the domestic front, the MCX-Gold futures contract (₹30,408 per 10 gm) failed to break above the resistance at ₹30,950 and reversed lower from an intra-week high of ₹30,929. Immediate support is at ₹30,400.

A break below it can take it lower to the key ₹30,100-₹30,000 support zone. If the contract manages to sustain above this support zone, a bounce-back move to ₹30,950 is possible again. A break above ₹30,950 will target ₹31,250 thereafter. The outlook will turn negative only if the contract breaks below ₹30,000 decisively. Such a break can drag MCX-Gold lower to ₹29,800 or ₹29,850.

Silver outlook

Global spot silver ($16.37 per ounce) is stuck in between $16.1 and $17 over the last several weeks. A breakout on either side will decide the next move. A break below $16.1 can drag prices lower to $15.5. On the other hand, if silver sustains above $16.1 in the coming days, an up-move to $16.75 or $17 is possible again.

MCX-Silver (₹38,322 per kg) has a crucial support in the ₹38,200-₹38,100 region. A strong break below ₹38,100 will increase the likelihood of the contract tumbling towards ₹37,800 or even ₹37,500. But if it reverses higher from ₹38,200-₹38,100 support zone, the downside pressure will ease and a rally to ₹38,500 and ₹39,000 is possible in the coming days.

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