Commodity Analysis

Gold gears up for a fresh rally

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

The yellow metal is likely to target $1,360 on a break above $1,325

Gold remained stable above the psychological level of $1,300 per ounce last week. The global spot gold prices were stuck in a narrow $1,300-1,315 range for most part of the week. Strength in the US dollar and a strong surge in the equity market kept gold subdued and range-bound.

However, weak economic data release from the US towards the end of the week helped the yellow metal breach $1,315 decisively on Friday. Gold has closed on a strong note at $1,322.5 per ounce, up 0.62 per cent for the week.

Silver fell initially but managed to bounce and recover some of the loss in the later part of the week. The global spot silver prices fell to a low of $15.49 and reversed higher to close the week at $15.79, down 0.23 per cent for the week.

On the domestic front, the gold futures contract on the Multi Commodity Exchange (MCX) opened on a weak note and fell to a low of ₹32,805 per 10 gm. However, the rupee reversing lower against the dollar, coupled with global prices moving higher, helped the MCX-Gold futures contract recoup all the loss. The contract surged from the week’s low of ₹32,805 and closed 0.43 per cent higher for the week at ₹33,384 per 10 gm.

The MCX-Silver futures contract tumbled over 2 per cent intra-week and made a low of ₹39,256 per kg. However, it managed to reverse higher from the low recovering some of the loss and closed 0.36 per cent lower for the week at ₹39,962 per kg.

US-China trade talk

The developments in the US-China trade deal talk will be the major factor that will move the markets in the coming week. The US had proposed to increase the import tariff on Chinese goods from March 1. Both the countries are in talks to strike a deal before the March 1 deadline. Failure to either strike a deal or postpone the deadline by 60 days as proposed by the US President Donald Trump could trigger a sharp sell-off in the global equities. Gold, in such a scenario, will see a strong surge by gaining safe-haven demand. However, the dollar movement will determine the pace of the rally in gold.

The dollar index (96.90) is currently facing resistance near 97.25. A strong break above this hurdle is needed for the index to gain momentum and move up to 97.5 and 98. But as long as the index trades below 97.25, a dip to 96.5 or 96.3 is possible in the near term.

Gold outlook

Gold is getting strong support around $1,300. The global spot gold ($1,322.5 per ounce) has formed a strong base between $1,300 and $1,315 over the last couple of weeks. The prices have surged, breaking above $1,315 on Friday. This keeps the bias positive for gold to break above the near-term resistance level of $1,325. Such a break will take gold higher towards $1,350 and $1,360 in the coming weeks.

The bullish outlook will get negated only if gold declines below the crucial $1,300-1,295 support zone. The next targets are $1,285 and $1,280. But such a fall looks unlikely at the movement. The long wicks on the weekly candles indicate that the yellow metal is getting strong buyers around the psychological level of $1,300. This makes a decline below the $1,300-$1,295 support zone less likely.

The outlook for the MCX-Gold (₹33,384 per 10 gm) futures contract is bullish. The contract has bounced from the ₹32,900-₹32,750 support zone. It is likely to test the immediate resistance level of ₹33,750 in the near term. A strong break above this hurdle will pave way for the next target of ₹34,650.

Silver outlook

The support in the $15.60-$15.55 region has held well for silver. The global spot silver ($15.79 per ounce) has bounced from the low of $15.49 last week. A key resistance is near the current levels at $15.80. A strong break above $15.80 will see silver rallying towards $16.1 and $16.2. But inability to breach $15.8 can keep silver in a narrow range between $15.50 and $15.80 for some time. A break below $15.5 will drag it lower to $15.4 and $15.3.

On the domestic front, the near-term outlook for the MCX-Silver (₹39,962 per kg) is mixed. The contract has an immediate resistance at ₹40,150. A strong break above this hurdle is needed for the contract to gain momentum and move up further. The next targets are ₹40,800 and ₹40,900. But as long as the contract trades below ₹40,150, a fall to ₹39,450 or even ₹39,000 cannot be ruled out in the coming weeks.

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