Commodity Analysis

Short-term outlook remains mixed for gold

Gurumurthy K | Updated on June 10, 2018 Published on June 10, 2018

As the market gears up for an eventful and volatile week

Gold was stable and range-bound in the past week. The global spot gold prices moved in a sideways range between ₹1,289 and ₹1,303. The prices have closed slightly higher by 0.4 per cent for the week at $1,298 per ounce.

But silver witnessed a strong rally. The global spot silver prices outperformed gold by surging over 2 per cent last week. The prices have closed at $16.79 per ounce.

Volatile week ahead

Gold, which was stable last week, is likely to witness some volatile moves in the coming days. The coming week is packed with a series of important events.

It all starts with US President Donald Trump’s historic meet with the North Korean leader Kim Jong-un on Tuesday.

Though Trump has indicated that the meet will just be the beginning of a long process, the initial outcome of the meeting will be much awaited by the market. Any signs of a negative outcome will be a boost for gold prices.

The second key event for the week is the US Federal Reserve meeting on Wednesday. The Fed is expected to hike rates for the second time this year.

This move is broadly priced in the market. But it is important to see if there is any change in the future rate hike path. Any signs of increasing the rate hike pace in the future could trigger a sell-off in gold.

Thirdly, the European Central Bank (ECB) meeting is due on Thursday. The outcome of the meeting, which could impact the dollar, will need a close watch. If the dollar weakens after the ECB meeting, it could help in limiting the downside in gold prices.

Dollar outlook

The near-term view for the dollar index (93.53) is negative. The index is likely to fall towards 93 or 92.85 in the initial part of the week. Whether it breaks below 92.85 or not will decide the next move. The outcome of either the Trump-Kim meet or the Fed’s policy decision could play a significant role in dictating where the dollar index should head from 92.85.

A strong break below 92.85 will increase the likelihood of the index tumbling to 92 or 91.8. Such a fall can push gold prices higher. On the other hand, if the dollar index reverses higher from 92.85, it can rally to 94 or 94.30, which, in turn, would keep the bullion prices subdued.

Gold outlook

The immediate outlook for gold in mixed. The global spot gold ($1,298 per ounce) can remain range-bound between ₹1,285 and ₹1,310 in the near term. A breakout on either side of $1,285 or $1,310 will decide the next move.

A strong break below $1,275 can take gold lower to $1,275 . A further break below $1,275 can take the prices tumbling towards $1,260 or $1,250 thereafter. On the other hand, if gold manages to breach $1,310, it can rally to $1,320 or $1,325. A further decisive break above $1,325 will then increase the possibility of the prices revisiting $1,360 levels.

On the domestic front, the gold futures contract on the Multi Commodity Exchange (MCX) surged over 2 per cent last week, recovering most of the loss made in the week earlier. Weakness in rupee helped push the domestic contract higher. The contract closed at ₹31,215 per 10 gm last week. Immediate support is in the ₹31,100-₹31,000 region. As long as the contract remains above this support zone, a rally to ₹31,500 or ₹31,600 is possible. A strong break above ₹31.600 will increase the likelihood of the contract rallying to ₹32,000. But a pull-back from the ₹31,500-₹31,600 region can drag the contract to ₹31,000 or ₹30,800 again.

Silver outlook

The global spot silver ($16.78 per ounce) is poised just above a crucial resistance level of $16.70. If it manages to sustain above $16.70, a rally to $17.25 is possible. But a pull-back from current levels may drag silver lower to $16.50 and $16.25 levels.

MCX-Silver (₹40,412 per kg) futures contract has been broadly range-bound between ₹39,500 and ₹41,000 per kg over the past one month. Within this range, the contract has been moving higher, and is likely to test ₹41,000 — the upper end of the range in the near term. Inability to break above ₹41,000 will keep the sideways range intact. In such a scenario, the contract can fall to ₹40,000 or even lower again. However, if the MCX-Silver futures contract manages to breach ₹41,000 decisively, it can target ₹42,000 thereafter.

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