Gold surges as dollar gets beaten down

Outlook remains positive as greenback can fall further

Gold prices surged in the past week, breaking above a key resistance level of $1,240 per ounce and closed at $1,255 per ounce, up 2.1 per cent for the week. Silver, on the other hand, rose 3.3 per cent last week and closed at $16.52 per ounce.

On the domestic front, the gold futures contract on the Multi Commodity Exchange (MCX) was up 1.9 per cent last week and closed at ₹28,541 per 10 gm. The MCX-Silver futures contract closed at ₹38,150 per kg, up 3.2 per cent for the week.

The US dollar, which was beaten down by a strong surge in the euro, helped bullion prices gain sheen. The European Central Bank (ECB) in its monetary policy meeting last week announced that it will continue its stimulus until December 2017 and discuss tapering in autumn (September to November). The euro got a boost from the ECB meeting outcome and knocked down the dollar index.

The dollar index declined sharply last week, breaking below a key support level of 94.45, and fell to a low of 93.85 before closing at 93.97, down 1.2 per cent for the week.

The dollar index may continue to trade weak. Immediate resistance is at 94.35, which may cap the upside in the near term. A fall to 93.4 or even 93 is likely in the coming days. A further break below 93 may drag it lower to 92.2 thereafter. Such a fall in the dollar index will aid gold prices to surge higher in the coming days.

Gold outlook

The sharp bounce-back move in the last two weeks suggests that the global spot gold price ($1,255 per ounce) is range-bound between $1,200 and $1,300. Strong support is in the $1,240-$1,235 region, which can limit the downside in the near term. A rise to $1,260 and $1,265 is likely in the coming days. A strong break above $1,265 will increase the likelihood of prices rallying to $1,280 and $1,300 thereafter.

The MCX-gold futures contract (₹28,541 per 10 gm) has immediate resistance between ₹28,600 and ₹28,700. A strong break above ₹28,700 can take the contract higher to ₹29,000 and ₹29,100 this week. But inability to breach the immediate hurdle at ₹28,700 may trigger an intermediate pull-back move to ₹28,200 or ₹28,100.

Silver outlook

Global spot silver ($16.52 per ounce) can extend its up-move to test the resistance at $17 this week. Inability to break above $17 can pull the prices lower to $16.5 and $16.3.

In such a scenario, a range-bound move between $16 and $17 is possible for some time. Key support is in the $16.15-$16 zone which is likely to limit the downside in the near term. On the other hand, if silver breaks above $17 decisively in the coming days, the up-move will extend to $17.3 and $17.5.

MCX-Silver (₹38,150 per kg) managed to close above ₹38,000 last week. If it sustains above ₹38,000, it can rise to ₹38,500 and ₹39,000 in the coming days. A decisive break above ₹39,000 can ease the downside pressure and increase the likelihood of the contract revisiting ₹40,000 levels thereafter.

Key support for the contract is in between ₹37,500 and ₹37,450. The outlook will turn negative only if it declines below this support zone, which looks less probable at the moment.

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