Commodity Analysis

Gold tumbles on profit booking

Gurumurthy K | Updated on March 03, 2019 Published on March 03, 2019

A sharp fall below $1,310 has turned the near-term outlook negative

Gold began the past week on a stable note. The global spot gold prices were stuck in between $1,320 and $1,335 per ounce in the first part of the week. However, things turned around towards the end of the week as gold broke and tumbled below $1,320 on Thursday. Gold fell sharply to make a low of $1,290 and bounced up slightly from there to close the week at $1,293.4 per ounce, down 2.7 per cent.

The US growth numbers, which beat market expectations, coupled with a strong surge in the US Treasury yields, triggered a fall in gold price. The US grew at 2.6 per cent in the fourth quarter of 2018. The market had expected it to grow at a rate of 2.2 per cent.

The US 10-year Treasury yield surged from 2.64 per cent to 2.75 per cent in the past week. As a result, the US dollar index bounced from its low of 95.82 and closed the week at 96.52. This, in turn, took the sheen off gold. Since gold had been rising consistently over the past several weeks, the break below $1,320 triggered a sharp and swift fall on the back of profit booking.

Silver, on the other hand, plummeted more than gold. The global spot silver tumbled, breaking below the key support level of $15.55 and made a low of $15.15. The prices slightly bounced back from the low and closed at $15.20, down 4.5 per cent for the week.

On the domestic front, the gold and silver futures contract on the Multi Commodity Exchange fell in tandem with the global prices. The MCX-Gold futures contract was down 2.6 per cent for the week. It closed at ₹32,640 per 10 gm. The MCX-Silver contract was down 4.9 per cent in the past week and closed at ₹38,301 per kg.

Dollar outlook

The US dollar index (96.53) made a smart recovery from its low of 95.82 in the past week. The key support in the 96-95.8 region is holding well as of now.

The bias on the chart is bullish. The dollar index can rise to 97 and 97.5 in the near term. Such an up-move in the index can keep gold under pressure.

The European Central Bank meeting on Thursday and the US Non-Farm Payroll (NFP) data release on Friday, which could drive the dollar, are the key events to watch out for.

Gold outlook

The sharp fall last week has turned the near-term outlook negative for gold. The global spot gold ($1,293.4 per ounce) has an immediate support at $1,290. If it manages to sustain above this support, a bounce to $1,300 or even $1,310 is possible in the near term. A range-bound move between $1,290 and $1,310 is also possible in such a scenario. But, if gold breaks below $1,290, the downside pressure may increase. Such a break will then increase the likelihood of gold extending its fall to $1,280 and $1,275. The region between $1,270 and $1,265 is the next key support that can halt the current fall. The yellow metal will gain strength only if it breaks above $1,310 decisively.

The MCX-Gold (₹32,640 per 10 gm) decisively breaking below the psychological level of ₹33,000 last week has turned the outlook negative. The level of ₹33,000 will now act as a good resistance and can cap the upside in the near term. As long as the contract trades below ₹33,000, a fall to ₹32,400 or even ₹32,000 is possible in the near term.

Silver outlook

The global spot silver ($15.20) has tumbled, breaking below the key support level of $15.55. Silver can fall to $15.00 and $14.90 this week. The level of $15.55 will now act as a strong resistance and can restrict the upside in the near term. A decisive break above $15.55 is needed now to ease the downside pressure.

The MCX-Silver (₹38,301 per kg) has fallen sharply below the key support level of ₹39,000. Key resistances are now poised at ₹38,500 and ₹39,000.

An intermediate bounce to these supports is likely to find fresh sellers coming into the market. The contract is likely to remain under pressure in the short term. A fall to ₹37,000 looks possible.

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