Commodity Analysis

Outlook turns bearish for gold

Gurumurthy K | Updated on April 21, 2019 Published on April 21, 2019

The yellow metal declines below the crucial $1,280 support

Gold tumbled over one per cent this past week. The global spot gold prices fell sharply, breaking below the crucial support level of $1,280 per ounce last week. It made a low of $1,272 and bounced back slightly, to close the week at $1,275.5 per ounce, down 1.2 per cent. The level of $1,280 had been holding well for gold since the beginning of this year.

Surprisingly, silver managed to remain insulated from the sharp sell-off in gold. The global spot silver prices, though volatile, continued to oscillate around the psychological support level of $15 per ounce in a broad sideways range between $14.85 and $15.10. Silver closed marginally higher by 0.4 per cent last week at $15.03 per ounce.

On the domestic front, the gold futures contract on the Multi Commodity Exchange (MCX) fell sharply in tandem with the global price. The MCX-Gold futures contract was down 1.3 per cent. It closed at ₹31,463 per 10 gm. The MCX-Silver futures contract, on the other hand, closed the week on a flat note at ₹32,246 per kg.

Equities drag gold

The up-trend in the global equity markets that gained momentum, weighed on gold. A sharp rally in global equities since the beginning of this year has taken the sheen off gold. Major equity indices such as the Nikkei (Japan), Dow Jones (US) and Shanghai (China) have so far surged between 10 per cent and 31 per cent this year. India’s Nifty 50 is up about 8 per cent, whereas gold is down 0.4 per cent and silver has fallen 3 per cent so far this year. Indeed, the strong rally in the global equities has seen gold and silver plummeting 5 per cent and 8 per cent, respectively, from their highs, over the last couple of months.

The global indices have room for further rally. This may continue to add pressure on gold, and can take prices lower in the coming months.

Gold outlook

The sharp fall below $1,280 has turned the outlook bearish for the global spot gold ($1,275.5 per ounce). The region between $1,280 and $1,282 will now act as a strong resistance. An intermediate bounce to this resistance zone can find fresh sellers coming into the market and cap the upside in gold. Some support is around $1,270.

As long as gold sustains above $1,270, a range-bound move between $1,270 and $1,282 is possible in the near term. However, the bias will continue to remain negative. An eventual break below $1,270 will drag gold lower to $1,265 and $1,260 in the coming weeks/months.

The outlook for the MCX-Gold (₹31,463 per 10 gm) futures contract is also negative. The contract has been facing strong resistance between ₹32,300 and ₹32,400 over the last one month. A key near-term resistance is at ₹31,800. As long as the contract trades below this resistance, a fall to ₹31,250 and ₹31,200 is possible in the coming days. A strong break below ₹31,200 will then increase the likelihood of the contract tumbling to ₹30,900 and even ₹30,500 over the medium term.

Silver outlook

The outlook for the global spot silver ($15.03 per ounce) is mixed. It has a crucial support at $14.80 per ounce, which is holding well as of now. A key resistance is at $15.20. As long as this support holds, and if gold remains stable between $1,270 and $1,282 in the near term, silver can bounce back to $15.10 and $15.20 in the coming days. Broadly, silver can remain range-bound between $14.85 and $15.20.

Silver will come under pressure only if it declines below $14.80. Such a break can drag silver lower to $14.50. This move could be swift. It will also increase the likelihood of silver prices tumbling to $14 over the medium term.

The MCX-Silver (₹37,246 per kg) was stuck in a narrow range between ₹36,890 and ₹37,470 in the past week. The near-term outlook is mixed. The immediate resistance is at ₹37,500 and the next important one is at ₹37,900; support is at ₹36,500.

The MCX-Silver futures contract has equal chances of either going up to ₹37,500-37,900 or fall to ₹36,500 from the current levels. On the charts, the possibility looks high for it to fall to ₹36,500 in the coming days.

The writer is Chief Research Analyst at Kshitij

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