Gold remains in a sideways range

Bias turns increasingly bullish for a break-out above $1,210

Gold continued to oscillate around the psychological $1,200-per-ounce mark for most part of the week. Though prices fell in the initial part of last week, global spot gold managed to reverse higher from its low of $1,185. The yellow metal made a high of $1,208 and came off slightly from there to close the week over 1 per cent higher, at $1,203 per ounce. The US dollar index’s weakening towards the end of the week helped gold sustain at higher levels.

Surprisingly, silver underperformed gold last week for the first time over past several weeks. Global spot silver surged to a high of $14.90, but reversed, giving up its gains. The price closed at $14.63 per ounce, down 0.2 per cent for the week.

On the domestic front, the Indian rupee weakening to a record low of 74.22 on Friday sharply pushed up the MCX-Gold and Silver futures contracts on the Multi Commodity Exchange last week. MCX-Gold, which closed the previous week at ₹31,090 per 10 g, was up 2 per cent. The MCX-Silver contract surged 1.8 per cent to close the week at ₹39,274 per kg.

Gold outlook

Global spot gold ($1,203 per ounce) stays within its $1,180-$1,210 sideways range. However, the possibility of gold breaking above $1,210 in the coming days is becoming more likely. Such a break can take the yellow metal higher to $1,215 initially. A further break and a decisive close above $1,215 will boost the momentum and pave the way for a fresh rally to $1,230 and $1,240 over the short term.

Strong near-term support is at $1,190, which is likely to limit the downside in the near term. The price action over the past couple of weeks indicates that gold is drawing fresh buying interest around this support. The outlook will turn negative only if gold decisively declines below $1,180. But such a fall looks unlikely at the moment.

On the domestic front, the outlook for the MCX-Gold (₹31,090 per 10 g) remains positive. Though there may be a dip to ₹30,700, or even lower, the downside may be limited. Strong support is in the ₹30,700-30,500 region. A fall below ₹30,500 seems unlikely now. A rally to test the ₹31,500-31,600 is likely in the short term. An eventual break above ₹31,600 will take the contract higher to ₹32,500 and ₹33,000 over the medium term.

Trading strategy

Traders with a medium-term view can buy on dips at ₹30,750 and ₹30,550. Stop-loss can be placed at ₹29,800 for the target of ₹32,500. Revise the stop-loss higher to ₹31,300 as soon as the contract moves up to ₹31,750.

Silver outlook

Global spot silver ($14.63 per ounce) closed on a mixed note last week. The prices have come off after testing the $14.80-14.85 resistance region. An intermediate dip to $14.40 or $14.35 cannot be ruled out. However, the downside is expected to be limited as the overall view remains positive. An upward reversal from the $14.40-14.35 support can take silver higher to $14.85 levels again. A strong break above $14.85 will then take the prices to $15 or even higher thereafter.

The MCX-Silver (₹39,274 per kg) remains strong. Significant support is in the ₹38,800 and ₹38,600 region, which is likely to limit the downside in the near term. Resistance is between ₹39,400 and ₹39,500. A strong break above ₹39,500 will trigger a fresh rally to ₹41,000 in the coming weeks.

Trading strategy

Medium-term traders can make use of dips in MCX-Silver to go long at ₹39,000 and ₹38,650. Stop-loss can be placed 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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Published on October 07, 2018

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