Commodity Analysis

Gold snaps three-week fall

Gurumurthy K | Updated on May 13, 2018 Published on May 13, 2018

A near-term pull-back in the dollar can push the yellow metal higher

Gold managed to sustain above the psychological $1,300-per-ounce mark for the second consecutive week. This keeps the prolonged $1,300-1,370 sideways range intact.

The global spot gold prices made a low of $1,304 per ounce and bounced from there to close 0.4 per cent higher for the week at $1,319 per ounce. This brings the three consecutive weeks of fall to an end. Silver was up 0.8 per cent in the past week. The global spot silver prices have closed the week at $16.67 per ounce.

The gold and silver futures contract on the Multi Commodity Exchange (MCX) is showing signs of increasing strength. A weak rupee is continuing to provide additional support for the domestic contracts. The MCX-Gold and MCX-Silver futures contracts outperformed the global spot prices by surging 1.3 and 3.7 per cent, respectively. The MCX-Gold contract has closed the week at ₹31,078 per 10g and the MCX-Silver contract has closed at ₹40,541 per kg.

Easing dollar

The dollar index surged to a high of 93.42 by last Wednesday. However, the index reversed lower from there, giving back all the gains, and closed the week on a flat note at 92.53. The index can dip in the near term to 92. A break below 92 can take the index further lower to 91.5. A near-term correction in the dollar index can help gold prices to remain above $1,300 and move further higher in the coming days.

Gold outlook

The global spot gold ($1,319 per ounce) has a series of resistances ahead in the $1,327-1,330 region and then in the $1,335-1,340 region. A test of these resistances is possible as long as gold remains above $1,300. A strong break above $1,340 will boost the momentum and take gold higher to $1,360 and $1,370. The outlook will turn negative only if gold declines below $1,300, which looks less probable at the moment.

On the domestic front, the uptrend in the MCX-Gold (₹31,518 per 10 g) futures contract is gaining strength. Support is at ₹31,350. A rally to ₹32,250 looks likely in the short term. A break above $32,250 will pave way for the next target of ₹33,000.

Medium-term traders can hold the long positions with a revised stop-loss at ₹31,250 and for the target of ₹32,000. Move the stop-loss further higher to ₹31,550 as soon as the contract moves up to ₹31,800.

Silver outlook

The global spot silver ($16.67 per ounce) prices can move up to $16.9 and $17 while it remains above $16.4. A break below $16.4 will negate the bullish outlook and can drag the prices to $16.1 and $16 again.

The MCX-Silver (₹40,541 per kg) has resistance at ₹40,750. A strong break above it can take the contract higher to ₹41,200 and ₹41,500. Support is at ₹40,000, a break below which can target ₹39,500 or even ₹39,000.

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