Gold rallies despite strong dollar

The sell-off in equity market aided the upmove in the yellow metal

Last week, gold prices extended its upmove as expected. The global spot gold prices surged to a high of $1,243.5 per ounce before closing the week at $1,233.5 per ounce, up 0.6 per cent for the week.

On the domestic front, the gold futures contract on the Multi Commodity Exchange (MCX) retained its ₹31,780-32,300 per 10 gm sideways range for the second consecutive week. A stable rupee has capped the gains in the domestic market, thereby limiting the impact of the rise in global gold prices.

The MCX-Gold futures contract closed the week on a flat note at ₹31,937 per 10 gm.

Interestingly, gold remained stable at high levels all through the week in spite a strong surge in the US dollar. The US dollar index surged 1.2 per cent intraweek to make a high of 96.86. It came off slightly from the highs and closed at 96.36, up 0.7 per cent for the week.

But, as mentioned last week, the sell-off in the global equity markets is helping gold gain sheen as a safe haven. The jitters created in the equity markets will continue to support gold in the coming weeks, too, since more sell-off in that segment is likely to occur.

However, the pace of gain in gold prices could be slow as the outlook for the US dollar index is also positive. The US dollar index (96.36) can move higher to 97 in the near term.

An inability to breach 97 can pull the index lower to 96.5 and 96 again. But a strong break above 97 will then increase the likelihood of the index extending its rally to 98.

Gold outlook

The outlook remains positive. The global spot gold ($1,233.5 per ounce) has strong support in the $1,227-1,220 region. The short-term outlook will turn negative only if the yellow metal declines below $1,220. The next targets are $1,210 and $1,195.

But such a fall looks unlikely at the moment. Intermediate dips to $1,220 is likely to lead fresh buyers into the market.

Near-term resistance is in the $1,238-1,240 region. A break above this hurdle will take the prices higher to $1,265 and $1,270.

On the other hand, two weeks of oscillation around ₹32,000 leaves the near-term outlook mixed for the MCX-Gold futures contract. The bias, however, remains bullish. The downside is expected to be limited to ₹31,500 if the contract breaks the current range below ₹31,800. A strong break above ₹32,300 will boost the momentum and take the contract higher to ₹33,000 thereafter.

Medium-term traders can hold the long positions taken at ₹31,846 and can accumulateat ₹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 lags

Unlike gold, silver is not getting strong buyers to lift up its prices. The metal has been underperforming gold over the past few weeks.

The global spot silver prices closed at $14.7 per ounce, up 0.5 per cent for the week.

The MCX-Silver futures contract, on the other hand, closed the week marginally lower by 0.2 per cent at ₹38,712 per kg.

Outlook

The near-term view continues to remain mixed for silver. The global spot silver ($14.7 per ounce) can remain range-bound between $14 and $15 for some time. A breakout on either side of $14 or $15 will then decide the next move.

A strong break above $15 will take the prices higher to $15.35 and $15.60. On the other hand, a break below $14 can drag silver lower to $13.65.

The MCX-Silver (₹38,712 per kg) seems to be in a sideways consolidation within the uptrend that had begun in September. A strong break above ₹39,350 will see the uptrend resuming towards ₹40,200. A further break above ₹40,200 will then pave the way for the next target of ₹41,000.

The bullish outlook will get negated if the contract declines below ₹38,400. The next targets are ₹38,000 and ₹37,700.

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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