Gold retains sheen on geo-political tensions

Weak US dollar is another factor that can push prices higher

Gold continues to hold on to its strength. North Korea conducting a hydrogen bomb test last Saturday (September 2) helped the yellow metal to open with a gap-up on Monday at $1,336 per ounce. After trading in a sideways range initially, gold got further boost from a weak dollar on Thursday after the European Central Bank (ECB) meeting. Bullion prices surged to a high of $1,357.6 per ounce after this event by Friday and gave back some of the gains to close at $1,346.5 per ounce, up 1.6 per cent for the week.

Silver, on the other hand, surged to a high of $18.22 per ounce on Friday before closing at $17.97, up 1.4 per cent for the week. The gold futures contract on the Multi Commodity Exchange (MCX) moved in tandem with the global spot price. The contract breached the psychological ₹30,000 per 10 gm mark and touched an intra-week high of ₹30,474.

It gave up some of the gains in the final trading sessions to close the week 1.5 per cent higher at ₹30,268.

MCX-Silver futures outperformed by surging 3.9 per cent last week. The contract has closed at ₹41,570 per kg.

Dollar weakens

The US dollar index tumbled 1.5 per cent last week as the Euro got a boost after the ECB meeting. The index tumbled to a low of 91, bouncing back slightly from there to close the week at 91.32. This bounce-back may extend in the initial part of this week to 91.7 or 92.

Key resistances are at 92 and 92.5 which can cap the upside in the short term. An eventual break below 91 will see the dollar index falling to 90.3. As such, a weak dollar index may help limit the downside in gold and keep the yellow metal bullish for further rise.

Gold outlook

Global spot gold ($1,346 per ounce) can dip initially to test the support at $1,340. A break below this support will increase the likelihood of the fall extending to $1,330. It may further fall below $1,330 as the possibility is high for fresh buyers to emerge at lower levels.

Resistance is at $1,350. A strong daily close above this hurdle can boost the momentum. Such a break will clear the way for the next targets of $1,360 and $1,370. The level of $1,370 is a key long-term resistance which may halt the current rally. MCX-Gold (₹30,268 per 10 gm) has key supports at ₹30,000 and then between ₹29,900 and ₹29,800. An immediate fall below ₹29,800 is unlikely. Resistance is at ₹30,320. A strong break above it can take the contract higher to ₹30,500 and ₹30,700 in the coming weeks. Traders can go long on dips at ₹30,100. Stop-loss can be placed at ₹29,775 for the target of ₹30,600. Revise the stop-loss higher to ₹30,350 as soon as the contract moves up to ₹30,500.

Silver outlook

Global spot silver ($17.97) has a strong support at $17.75 which is likely to limit the downside in the near-term. The outlook remains bullish for a rally to $18.55. The MCX-Silver (₹41,570 per kg) futures contract may consolidate sideways between ₹41,200 and ₹42,000 for some time.

A breakout on either side of this range will decide the next move. A strong break above ₹42,000 can take the contract higher to ₹42,700 and ₹43,000. On the other hand, if the contract declines below ₹41,200 it can fall to ₹40,850 initially. A further break below ₹40,850 can drag it to ₹40,350 and ₹40,000 thereafter.

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