Strong dollar likely to weigh on gold

But the presence of a support cluster can slow down the pace of the fall

Gold prices inched lower, but at a slower pace for most part of the last week.

The global spot gold prices were hovering between $1,220 and $1,235 per ounce until Thursday.

The yellow metal remained relatively stable even when the US dollar index surged after the US Federal Reserve meeting on Thursday.

The Fed left the rates unchanged and left the doors open for the next rate hike in December. The dollar index spiked from around 96 to 96.75 immediately after the Fed meeting, and gold dipped by $2.

The fall in the yellow metal gathered momentum only in the US session on Friday when the prices sharply declined below $1,218.

The US Producer Price Index (PPI) data release on Friday showing an increase of 2.9 per cent (year-on-year) in October — the most in six years — from 2.6 per cent a year ago, intensified the selling pressure on gold. The spot gold prices fell to a low of $1,207 before closing at $1,209 per ounce, down 1.9 per cent for the week.

Dollar to dominate

The movement in the dollar index could influence gold in the coming days. The US dollar index (96.9) has an immediate resistance at 97.15. A strong break above it can take the index higher to 97.8 and 98 in the coming days. Such a rally in the dollar index may continue to keep gold prices under pressure. On the other hand, if the index reverses lower from 97.15, it can fall to 96.50 or even 96, in which case, gold can get some relief.

Gold outlook

The global spot gold ($1,209 per ounce) is likely to remain subdued as long as it trades below $1,220. A dip to $1,203 or $1,200 cannot be ruled out in the near term. However, a series of supports poised at $1,203, $1,200 and then in the $1,197-$1,196 region can slow down the pace of the fall in the coming days.

If gold manages to bounce from any of the supports mentioned above, the downside pressure could ease. A relief rally to $1,210 or even $1,220 is possible in that case. However, the outlook will turn positive only if the yellow metal manages to decisively break above $1,222. Such a break will then pave way for a revisit of $1,230 and $1,240 levels. The yellow metal will come under renewed pressure if it decisively declines below $1,196. The next targets are $1,190 and $1,180.

Silver outlook

The global spot silver prices tumbled, breaking below the key support level of $14.20, last week. The prices closed 3.8 per cent lower for the week at $14.16 per ounce. The psychological level of $14 is a crucial support to watch. If silver manages to bounce from this support, an upmove to $14.20 is possible. A further break above $14.2 will ease the downside pressure and take the prices higher to $14.5 and $14.75 levels again.

On the other hand, the prices will come under more pressure if silver decisively declines below $14. In such a scenario, the prices can fall to $13.7 or even $13.5 thereafter.

On the domestic front, the bullion prices fell more than the global prices last week. The rupee’s strengthening against the US dollar last week, gave an incremental pressure on the domestic prices. The gold futures contract on the Multi Commodity Exchange (MCX) was down 2.3 per cent last week; the contract closed at ₹31,016 per 10 gm. The MCX-Silver futures contract plummeted 4.5 per cent to close the week at ₹36,880 per kg.

The outlook for the MCX-Gold (₹31,016 per 10 gm) futures contract is negative. The contract has key resistance at ₹31,300. As long as it trades below this resistance, a fall to ₹30,550 cannot be ruled out. A further break below ₹30,550 will then increase the likelihood of the fall extending to ₹30,300 or even ₹30,175. Traders can exit the long positions.

The downside pressure will ease only if MCX-Gold futures contract decisively rises past ₹31,500. But such a strong upmove looks less probable at the moment

The outlook for the MCX-Silver (₹36,880 per kg) futures contract is also negative. It tumbled, breaking below the key support level of ₹38,000. Near-term resistance is at ₹37,500. As long as it trades below this hurdle, a fall to ₹35,800 is possible in the short term.

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