Commodity Analysis

Gold wavers amidst US-China trade war

Gurumurthy K | Updated on April 08, 2018 Published on April 08, 2018

Though the broad $1,300-1,370 sideways move can continue, the bias remains bullish

It was a volatile week for gold. The tariff retaliations between the US and China saw gold prices swinging between $1,319 per ounce and $1,348 per ounce last week. China, on Wednesday last week, proposed to introduce tariffs on about 106 US products that included soyabean, cars, etc. In turn, the US President directed the United States Trade Representatives to consider an additional tariff of about $100 billion on China.

The yellow metal, which had made a high of $1,348 on Wednesday after China’s move, came off from there to make a low of $1,319 on Friday. Gold has, however, managed to bounce from the low and close the week 0.6 per cent higher at $1,333 per ounce.

Silver, on the other hand, retains its $16.10-$17 per ounce sideways range. Global spot silver prices have close the week on a flat note at $16.38 per ounce.

On the domestic front, the MCX-Gold futures contract was broadly range-bound between ₹30,350 per 10 gm and ₹31,000 per 10 gm. The contract closed at ₹30,694 per 10 gm, up 0.9 per cent for the week. The MCX-Silver futures contract on the other hand surged to a high of ₹39,054 per kg initially on Monday. But the contract reversed sharply lower from there to close the week 0.25 per cent lower at ₹38,235 per kg.

The ongoing trade war between the US and China is likely to keep gold and silver prices volatile, going forward.

Dollar outlook

The US dollar index rose to a high of 90.6 after hovering in a narrow range around 90 for most part of the week. However, the index reversed lower again on Friday as the US job numbers failed to meet the market expectation. The US added 103,000 to its non-farm payroll in March. Market was expecting the US to add 193,000 jobs.

The dollar index came-off from around 90.6 to close the week at 90.10. The immediate outlook is unclear for the index. Support for the index is in between 89.65 and 89.50. As long as the index remains above this support zone, the bias remains positive for the dollar index to move up to 91 and 91.5 in the short-term. But a fall below 89.5 can drag the index lower to 89 or even 88.5

Gold outlook

The global spot gold ($1,333 per ounce) has support at $1,320. As long as it remains above this support, an upmove to $1,350 is possible in the near-term. A strong break above $1,350 will then pave way for the next targets of $1,360 and $1,370

As mentioned last week, gold can continue to remain in its broad $1,300-$1,370 sideways range. A breakout on either side of $1,300 or $1,370 will then decide the next trend. The bias continues to remain positive for gold to breach $1,370 and rally towards $1,400 or even higher levels going forward.

The MCX-Gold (₹30,694 per 10 gm) is stuck in between ₹30,000 and ₹31,000 over the last several weeks. A strong break above ₹31,000 will take the contract higher to ₹31,250. On the other hand, if the MCX-Gold contract declines below ₹30,000, it can target ₹29,850 or even ₹28,500.

Silver outlook

The global spot silver ($16.38 per ounce) is stuck in between $16.1 and $17 over the last several weeks. A breakout on either side of $16.1 or $17 will decide the next move. A break below $16.1 can drag the prices lower to $15.5. On the other hand, if silver sustains above $16.1 in the coming days, an up-move to $16.75 or $17 is possible again.

The MCX-Silver (₹38,235 per kg) hovers above a key near-term support level of ₹38,150. If the contract declines below this support, it can fall to ₹37,775. On the other hand, if the contract manages to sustain above ₹38,150, there is a strong likelihood of the contract rallying back towards ₹38,800 and ₹39,000 again.

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