Commodity Analysis

Near-term view negative for gold

Gurumurthy K | Updated on April 14, 2019 Published on April 14, 2019

Whether the prices bounce back from $1,280 or not will decide the next move

Last week was volatile for gold. The yellow metal surged about 1.5 per cent intra-week to make a high of $1,311 per ounce. But the prices tumbled from the high, breaking below the psychological level of $1,300, and gave back all the gains made during the week. The global spot gold closed the week at $1,290.4 per ounce.

The UK getting an extension in its Brexit deadline and positive developments on the US-China trade talk increased the risk appetite in the market.

Silver breached the key resistance level of $15.25 per ounce but failed to sustain higher. It closed the week at $14.97 per ounce, down about a per cent. On the domestic front, weakness in the rupee helped minimise the loss in gold and silver futures contract on the Multi Commodity Exchange (MCX).

Dollar outlook

The US dollar index (96.85) was down about a per cent last week. The near-term outlook is unclear. The index can dip to test the key near-term support level of 96.60 in the initial part of this week. Whether the dollar index reverses higher from 96.60 or not will decide the next move. A bounce from 96.60 will take it higher to 97.3 and 97.5. Such a bounce can cap the upside in gold. But a break below 96.6 can bring pressure on the index. Such a break can drag it lower to 96 and 95.8 thereafter.

Gold outlook

The sharp fall below $1,300 last week in the global spot gold ($1,290.4 per ounce) is a negative. This has turned the near-term view bearish for gold. A fall to $1,285 and $1,280 looks likely in the near term. A break below the immediate support level of $1,287 will trigger this fall. Whether gold manages to bounce from $1,280 or not will decide the direction of the next move. A bounce from $1,280 will increase the possibility of gold revisiting $1,300 levels. But a break below $1,280 will increase the downside pressure and drag the prices further lower to $1,275 and $1,270 thereafter. Such a break will also increase the possibility of gold tumbling to even $1,260 levels in the coming weeks.

The sentiment will turn positive only if gold breaks above $1,310, which will then pave the way for $1,320 and $1,330. But such a strong up-move looks less probable.

On the domestic front, the MCX-Gold (₹31,862 per 10 gm) has resistance in between ₹32,000 and ₹32,100. As long as it trades below ₹32,000, a fall to ₹31,400 is possible in the near term. A further break below ₹31,400 will increase the likelihood of the fall extending to ₹31,250. But if the MCX-Gold contract manages to bounce from ₹31,400, an up-move to ₹32,000 or even ₹32,300 is possible thereafter.

Silver outlook

Silver looks much weaker than gold. The global spot silver ($14.97 per ounce) will now have strong resistance in between $15 and $15.05. As long as it trades below $15.05, a fall to $14.90 is likely in the near term. A break below $14.90 can take silver further lower to $14.85 and $14.80. The region between $14.85 and $14.80 is a crucial support zone for silver. A strong break and a decisive close above $14.8 will see silver tumbling to $14.5 or even $14 over the medium term. Silver will get a breather only on a break above $15.05. A break above $15.05 will take the prices higher to $15.20 again.

The outlook for the MCX-Silver (₹37,220 per kg) has been oscillating between ₹37,000 and ₹38,000 over the last couple of weeks. A breakout on either side of ₹37,000 or ₹38,000 will decide the direction of the next move. A break below ₹37,000 will drag the contract to ₹36,350 and ₹36,000. On the other hand, a break above ₹38,000 will pave way for a fresh rally to ₹39,000 and ₹39,500.

The writer is Chief Research Analyst at Kshitij Consultancy Services

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