Gold under pressure despite weak dollar

Prices can dip further in the short term

It was a volatile week for the yellow metal. The global spot gold prices crashed over a per cent initially on Monday from around $1,253 per ounce to $1,238 per ounce in a few minutes on a possible wrong trade placed on the system.

Though prices clawed back from the low of $1,236 to $1,250 levels once again, the pull-back could not sustain and prices fell back to close the week at $1,241, down 1.2 per cent for the week.

Increasing hopes that many central banks would join the US in hiking interest rates kept bullion prices under pressure. The European Central Bank (ECB) President, Mario Draghi, hinted last week that the ECB could begin winding up its stimulus. This triggered a sharp rally in the euro last week.

As a result the dollar index tumbled, breaking below a key support level of 96.45 and closed 1.6 per cent lower for the week at 96.63.

Dollar outlook

The sharp fall last week has dragged the dollar index well below the key 61.8 per cent Fibonacci retracement support level of 96.45. This support level was limiting the downside in the index for more than a month. The near-term view is negative. The index can dip to test the 95.30-95.05 support in the coming days.

An upward reversal from this support zone may ease the downside pressure. It will also increase the possibility of the index revisiting 96 and 96.45 levels once again. Such a bounce in the dollar index can limit the upside in gold prices, going forward.

Gold outlook

The global spot gold ($1,241.6 per ounce) is more likely to break below the immediate support at $1,240 this week. Such a break can take it lower to the next crucial support at $1,233, where both the 200-week and 200-day moving averages and also a trend-line are poised.

This makes the possibility of an upward reversal from $1,233 level high. Such a bounce can take bullion prices higher to $1,245 and $1,250 levels once again. But if gold breaks below $1,233 decisively, then the possibility of the prices tumbling to $1,222 will increase.

On the domestic front, the gold futures contract (₹28,439 per 10 gm) on the Multi Commodity Exchange (MCX) opened the week on a negative note with a wide gap-down and touched a low of ₹28,350 per 10 gm on Monday. The contract failed to sustain the bounce-back move and reversed lower after touching a high of ₹28,725.

The key resistance is between ₹28,600 and ₹28,800. As long as the contract trades below this resistance zone, a fall to ₹28,100 and ₹28,00 cannot be ruled out. A break below the immediate support at 28,400 can trigger this fall. Whether the contract reverses higher from ₹28,000 or not will decide the next move. A strong bounce from ₹28,000 will mean that the broader ₹28,000-29,500 range is intact and can trigger a rise to ₹28,500 or even higher. On the other hand, a decisive break below ₹28,000 can drag the MCX-gold futures contract lower to ₹27,500.

Silver outlook

The global spot silver ($16.63 per ounce) prices fared relatively better when compared to gold last week. It touched a high of $16.90 and reversed lower from there to close the week 0.5 per cent lower.

The immediate outlook is not clear. Support is at $16.25 and resistance is at $16.85. A range-bound move between these levels is possible for some time. A breakout on either side of $16.25 or $16.85 will then determine the next move. A break below $16.25 can take the prices lower to $16 or $15.75. On the other hand, the targets if silver breaks above $16.85 are $17 and $17.35.

On the domestic front, MCX-Silver (₹38,344 per kg) has come down after touching a high of ₹38,920. The immediate outlook is negative. A fall to test the key support at ₹37,850 is likely in the near term.

If the contract manages to reverse higher from this support, a rise to ₹38,800 or even ₹39,000 is possible thereafter. But a strong break below ₹37,850 will increase the likelihood of the fall extending to ₹37,000.

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