Gold kick-starts Santa Claus rally

Weak equities and subdued dollar push the yellow metal’s prices higher

After two weeks of narrow subdued movement, gold staged a strong rally last week. The US spot gold prices surged 2.4 per cent in the past week, breaking above the key resistance level of $1,240 per ounce. The yellow metal closed the week on a strong note at $1,249 per ounce.

Silver, on the other hand, sustained above the psychological level of $14 per ounce in the past week. The global spot silver prices surged about 3 per cent and closed the week at $14.62 per ounce.

Boosting factors

Strong sell-off in the US equities and increasing speculation that the US Federal Reserve could slow down its pace of rate hikes next year supported gold prices in the initial part of last week.

The actual trigger for gold to breach the key resistance level of $1,240 came on Friday from the US jobs data, which failed to meet the market expectation.

This strengthened the speculation that the US Fed could slow down the pace of rate hikes in future, and thus helped gold breach the key hurdle of $1,240.

Dollar outlook

Barring a couple of spikes above 97 in November, the US dollar index (96.52) has been range-bound broadly between 96 and 97 over the last few weeks.

This leaves the short-term outlook mixed for the index. Key resistance is in the 97-97.20 region. As long as the index remains below this resistance zone, there is a strong likelihood of it breaking below 96 in the coming days.

Such a break can drag the index lower to 95.5 and 95 thereafter. Such a fall in the index may push the gold prices further high.

Gold outlook

The strong break above $1,240 has strengthened gold’s bullish momentum. The global spot gold ($1,249 per ounce) may now find strong support in the $1,240-1,235 region. Dips to this support zone is likely to find fresh buyers. Gold can test $1,257 in the near term. A break above $1,257 will then increase the likelihood of the up-move extending to $1,260 and $1,270 thereafter.

The bullish outlook will get negated only if gold declines below $1,235. In such a scenario, the prices can fall to $1,220 and $1,215 again.

Silver outlook

The global spot silver ($15.62 per ounce) is retaining its $14-15 sideways range.

Silver sustained above $14 and surged within the range. The support is in the $14.35-14.25 region. The immediate resistance is at $14.70.

A strong break above it can take silver higher to $15 in the coming days.

A strong and decisive close above $15 will boost the momentum and pave way for the next targets of $15.25 and $15.50.

Domestic cues

A strong up-move in global prices, coupled with a sharp fall in the Indian rupee, triggered a reversal in the MCX gold contract last week.

The MCX-Gold futures contract rallied over 4 per cent. The contract closed at ₹31,595 per 10 gm. The support is at ₹31,275. As long as the contract trades above this support, there is a strong likelihood of it moving higher to ₹32,150 in the coming days.

A strong break and a decisive close above ₹32,150 can lead the contract to higher to ₹32,500.

The MCX-Silver futures contract, on the other hand, sky-rocketed 8 per cent last week. It closed at ₹37,972 per kg.

The strong recovery in the past week has taken back the contract well above the crucial level of ₹36,000.

The stop-loss on the short positions recommended last week has been hit.

The immediate resistance is at ₹38,000. An inability to breach this hurdle can drag the contract lower to ₹37,000 in the near term.

Such a scenario could lead to a range-bound move between ₹37,000 and ₹38,000 for some time.

A break below ₹37,000 can then drag the contract further low to ₹36,500.

On the other hand, if the MCX-Silver futures contract manages to decisively breach ₹38,000, the current up-move can extend to ₹39,000 and ₹39,300 in the coming weeks.

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