Gold likely to inch further higher

Edgy global equities can help push up prices of the yellow metal

Gold prices inched higher last week, as expected, and closed higher for the third consecutive week. Global spot gold prices opened the week encouragingly, surging to a high of $1,233 an ounce on Monday. However, prices stayed in a narrow range above $1,220 for the rest of the week. Gold closed the week at $1,226.5 an ounce, up 0.78 per cent.

Silver, on the other hand, continued to trade mixed, and subdued in the past week. Global spot silver prices underperformed gold for the third consecutive week.

Silver was stuck in a narrow range between $15.45 and $15.85 an ounce in the past week. Prices closed at $14.62 an ounce last week, up 0.3 per cent.

On the domestic front, the rupee’s recovery last week capped the gains in gold and silver futures contracts on the Multi Commodity Exchange (MCX). The MCX-Gold futures contract surged to an intra-week high of ₹32,311 per 10 gm, though they reversed lower, giving up most of the gains. The contract closed at ₹31,902 per 10 gm, up 0.18 per cent for the week.

MCX-Silver, on the other hand, opened the week vibrantly, touching a high of ₹39,444 per kg. However, it failed to sustain higher, dropping and renouncing the gains to close at ₹38,796 per kg, down 0.31 per cent for the week.

US equities vulnerable

The nervousness in the global equity market following the sharp sell-off a week earlier is holding gold higher. Gold could gain sheen if the sell-off in global equities resumes. The Dow Jones Industrial Average (25,444), the US’ major index, is vulnerable to a fresh fall in the coming days.

The index can fall to 24,000 and 23,500 if it decisively breaks below 25,000 in the near term. Such a fall in the US index is likely to spill over to other global indices as well. This could work in favour of gold as a safe haven and can push up prices of the yellow metal.

Dollar mixed

The US dollar index (95.71) kept moving sideways between 94.8 and 96.15 for the third consecutive week. The near-term outlook is unclear. A breakout on either side of 94.8 or 96.15 will decide the next move. If the dollar index breaches 96.15, it can initially move up to 96.45. A further break above 96.45 will then see the index targeting 97 over the short term. Such an upmove may cap the upside in gold. On the other hand, if the index breaks below 94.80 in the coming days, a fall to 94.20 or 94 is possible. As a result, gold prices can inch higher.

Gold outlook

The near-term outlook for gold remains positive. Global spot gold ($1,226 per ounce) has immediate support at $1,220. The next significant supports are in the region of $1,213 and $1,210. The downside is expected to be limited to $1,210 if gold declines below $1,220 in the coming days.

An upmove to $1,240 and $1,245 is likely in the coming days. A strong break above $1,245 will then increase the likelihood of gold extending its upmove to $1,260.

Gold prices will come under pressure only if it declines below the psychological level of $1,200. But such a strong fall looks unlikely now. The MCX-Gold (₹31,902 per 10 gm) has been oscillating around ₹32,000. The bias is bullish as indicators on the charts are giving positive signals.

The 55-day moving average has crossed over the 100-day moving average. This is a positive sign, indicating that the downside could be limited. Immediate support is at ₹31,800 and the next significant support is at ₹31,350. A strong break and a decisive close above ₹32,100 will trigger a fresh rally to ₹32,500 and ₹33,000.

Trading strategy

Medium-term traders can hold the long positions taken at ₹31,846. Accumulate longs on dips at ₹31,600 and ₹31,400.

Keep the stop-loss at ₹30,900 for the target of ₹33,000. Revise the stop-loss higher to ₹31,950 as soon as the contract moves up to ₹32,500.

Silver outlook

The near-term view continues to remain unclear for silver. Global spot silver ($14.62 per ounce) can broadly trade between $14 and $15. A breakout on either side will decide the next move. A strong break above $15 will take prices to $15.35 and $15.60, while a break below $14 can drag silver lower to $13.65.

MCX-Silver (₹38,796 per kg) is range-bound between ₹38,500 and ₹39,500. However, the bias is positive as the price action indicates that the current sideways move is just a consolidation within the ongoing uptrend. As such, there is a strong likelihood of the contract breaking above ₹39,500 in the coming days. Such a break can take the MCX-Silver futures contract higher to ₹40,200. A further break above ₹40,200 will then pave the way for the next target of ₹41,000. The contract will come under pressure only if it breaks below ₹38,500. The next targets are ₹38,000 and ₹37,700.

Trading strategy

Medium-term traders can hold the long positions taken at ₹39,000 and ₹38,650. Retain the stop-loss at ₹37,850 for the target of ₹41,000. Revise the stop-loss higher to ₹39,300 as soon as the contract moves up to ₹39,700.

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