Commodity Analysis

Near-term view remains negative for gold

Gurumurthy K | Updated on July 29, 2018 Published on July 29, 2018

Outcome of the US Fed meeting may determine the trend for the metal

It was relatively a calm week for gold as the prices were broadly range-bound. Though the global spot gold prices inched higher in the initial part of the week, it failed to sustain higher.

The prices faced strong resistance around $1,235 per ounce and reversed lower after testing this hurdle several times during the week. Gold tested $1,235 on Thursday and came off from there to close the week at $1,224 per ounce, down 0.4 per cent for the week.

However, the overall down-trend remains intact, and gold is continuing to move lower, but at a slower pace.

Silver was also range-bound in the past week. The global silver prices were stuck in a narrow range between $15.32 and $15.67 per ounce. The price closed on a flat note for the week at $15.50 per ounce.

On the domestic front, the gold and silver futures contract on the Multi Commodity Exchange (MCX) moved in tandem with the global spot prices.

The MCX-Gold futures contract was down 0.47 per cent for the week and closed at ₹29,780 per 10g. MCX-Silver, on the other hand, closed at ₹38,326 per kg and was down 0.34 per cent for the week.

Dollar mixed

The US dollar index has been stuck inside a sideways range between 93.9 and 95.65 over the last few weeks. A breakout on either side of this range will decide the next move.

Within this range, the index dipped to 94.08, and has bounced higher. There is a strong likelihood of the index inching further higher within the range in the near term to test 95.65. Such an up-move can cap the upside in gold and keep its prices subdued.

The US Federal Reserve meeting is due on Wednesday. The outcome of this event could possibly be a trigger to create a breakout in the dollar index.

The movement in the dollar index after this event will play a significant role in setting the trend for gold.

If the dollar index breaks below 93.9, a fall to 93 is possible. On the other hand, a strong break above 95.65 can take the index higher to 96 and 96.35.

Gold outlook

The global spot gold ($1,224 per ounce) can remain range-bound between $1,215 and $1,235. Within this range, the bias is bearish. A decisive daily close below $1,220 will increase the likelihood of the prices breaking the range below $1,215. Such a break can drag gold lower to $1,205 or $1,200 in the short term.

Whether gold breaks below $1,200 or not will then decide the next move. If gold manages to bounce from $1,200, a corrective rally to $1,250 is possible. But a break below $1,200 can drag the prices lower to $1,160 or $1,150.

The MCX-Gold (₹29,780 per 10 g) has key supports at ₹29,650 and ₹29,500. The price action on the daily chart leaves the bias bearish. As such, the possibility is high of the contract breaking below ₹29,500 in the coming days. Such a break can drag the contract lower to ₹29,000. Strong resistance for the contract is in the ₹30,000-30,200 region. The MCX-Gold contract has to breach ₹30,200 to turn the sentiment positive.

Silver outlook

The near-term view for silver is mixed. The global spot silver ($15.50 per ounce) has a key resistance at $15.65. As long as the prices remain below this resistance, a dip to test $15 is likely in the short term. On the other hand, if silver manages to break above $15.65, a relief rally to $16.20 is possible.

On the domestic front, the MCX-Silver (₹38,326 per kg) is hovering above a key support level of ₹38,000. This bias is negative on the charts. A break below ₹38,000 can drag the contract lower to ₹37,500, or even lower levels in the coming weeks.

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