Short-term outlook is bullish for gold

Weak dollar and geo-political tensions keep the yellow metal on a strong footing

Gold prices in the international market have gained momentum, thanks to a weak dollar. The spot gold price which fell to a low of $1,243 per ounce in the initial part of last week, reversed higher to close at $1,269.6 per ounce, up 1.2 per cent for the week. Silver also reversed higher after an initial fall and has closed at $16.75 per ounce, up 1.4 per cent for the week. Both the metals have been rallying higher for three weeks now. Gold is up 4.7 per cent while silver has surged over 7 per cent in the past three weeks.

On the domestic front, the gains in the gold futures contract on the Multi Commodity Exchange (MCX) were limited as the rupee strengthened against the US dollar last week. The MCX-Gold futures contract closed the week at ₹28,580 per 10 gm, up marginally by 0.1 per cent. The MCX-Silver futures contract, on the other hand, had risen 0.8 per cent and closed at ₹38,460 per kg last week.

Supporting factors

Bullion prices, which were trading weak initially last week, got a boost from the outcome of the US Federal Reserve meeting on Wednesday. The Fed left the rates unchanged, raising concerns on inflation and stating that it is monitoring the developments closely. This increased speculation in the market that the Fed would go slow on raising interest rates. As a result, the dollar, which has been under pressure over the last few weeks, extended its down-move and helped gold prices go up. The political uncertainty within the US and the geo-political tensions as North Korea continues to test missiles, are also favouring the yellow metal.

The dollar continues to remain weak. The US dollar index has lost 2.8 per cent over the last three weeks. The dollar index (93.25) is facing a strong resistance in the 94-94.25 region. It is more likely to decline, breaking below 93 towards 92.25. Such a fall in the dollar index can push gold prices further up in the coming days. The region between 92.25 and 92 is a strong support for the index and the possibility of it reversing higher from there towards 94 cannot be ruled out.

Gold outlook

The global spot gold ($1,269 per ounce) has broken above the $1,260-$1,265 resistance zone. The broad region between $1,265 and $1,255 will now serve as a strong support.

A rise to $1,275 and $1,280 looks likely. A pull-back move from there can see an intermediate fall to $1,265. But a strong close around the $1,275-$1,280 zone this week could be very bullish. It will increase the likelihood of the prices revisiting $1,300 levels and will increase the possibility of it breaking above $1,300, going forward.

The MCX-Gold futures (₹28,580 per 10 gm) contract faces strong resistance at ₹28,600 — the 100-day moving average. The 200-day moving average is also poised near this level at ₹28,670. The contract can gain momentum only if it breaks above ₹28,670 decisively. Such a break can take it to ₹29,000. The outlook will turn negative if the contract declines below ₹28,300. The ensuing targets are ₹28,150 and ₹27,950.

Silver outlook

The global spot silver ($16.75 per ounce) has a key support at $16.5. As long as it sustains above this support, a rise to $17 is possible. Further break above $17 can take silver higher to $17.5. But inability to break above $17 can drag the prices lower to $16.7 and $16.5 levels once again.

The MCX-Silver futures (₹38,460 per kg) contract is stuck inbetween the support at ₹38,000 and resistance at ₹38,600. A strong break above ₹38,600 can boost the momentum and take it higher to ₹39,000. Further break above ₹39,000 will see the up-move extending to ₹39,500. On the other hand, if the contract declines below ₹38,000 in the coming days, it can fall to ₹37,500 initially. Further fall below ₹37,500 will increase the downside pressure and drag it to ₹36,900.

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