Gold gets relief from geo-political tensions

But strong dollar may cap the upside in the short term

Gold remained under pressure, as expected, almost all through last week. But the geo-political tensions that was reignited on Friday, helped the yellow metal recover from the week’s low. Gold fell to a low of $1,260.7 per ounce on Friday and recovered from there to close at $1,276.7, down 0.2 per cent for the week. Reports on North Korea planning to test a long-range missile that could reach the west coast of the US, aided gold to regain safe-haven status.

Silver, on the other hand, has managed to close slightly higher for the week. It made a low of $16.33 per ounce and recovered from there to close at $16.84, up 1.1 per cent for the week.

On the domestic front, the gold futures contract on the Multi Commodity Exchange (MCX) has reversed higher after testing the crucial support level of ₹29,280 per 10 gm last week. The contract made a low of ₹29,260 per 10 gm on Wednesday and bounced back from there to close at ₹29,573, up 0.1 per cent for the week. The MCX-Silver futures contract made a low of ₹38,710 per kg and bounced back from there to close 0.4 per cent higher for the week at ₹39,596 per kg.

Mixed reaction

The US jobs data on Friday received a mixed reaction from the market. The non-farm payroll fell by 33,000 impacted by the hurricanes that hit the US. However, employee wages, a key indicator, picked up strongly. The average hourly wages of employees increased 2.9 per cent (year-on-year) in September. The employee wages have been moving higher over the last three consecutive months and reinforces the chances of a rate hike in December.

The US dollar index was not impacted much by the weak job numbers. It made a high of 94.27 and fell back to close the week at 93.8. The key resistance at 94.3 is holding well as of now. If the index manages to sustain above the immediate support at 93.65 and reverses higher again, it can break above 94.3 in the coming days. Such a break can take the index to 95 or even higher levels. In such a scenario, the upside in gold could be capped. The dollar index will come under pressure only if it declines below 93.65. The next targets are 93 and 92.85.

Gold outlook

The global spot gold ($1,276.7 per ounce) has an immediate resistance at $1,280. A strong break above it can take it higher to $1,300 and $1,315. But, inability to break above it can pull the prices lower to $1,260 again and keep it range-bound between $1,260 and $1,280 for some time. A break below $1,260 can drag the prices lower to $1,250 or $1,243. The level of $1,243 is a key medium-term support. A break below it is less probable. An eventual reversal from $1,243 will increase the possibility of gold revisiting $1,300 levels over the medium term.

The MCX-Gold (₹29,573 per 10 gm) has reversed higher from a key support level of ₹29,280. The outlook is bullish. Immediate resistance is at ₹29,745, which is likely to be tested early this week. A strong break above it can take the contract higher to ₹30,130. Further break above ₹30,130 will increase the possibility of the rally extending to ₹30,500 and ₹30,675. Medium-term traders who have taken long positions last week at ₹29,350 can hold it. Retain the stop-loss at ₹28,750 for the target of ₹30,500. Revise the stop-loss higher to ₹29,500 as soon as the contract moves up to ₹29,850.

Silver outlook

The global spot silver ($16.84 per ounce) has bounced back from a key Fibonacci retracement support level last week. Immediate resistance is at $16.9. A strong break above it can target $17.2 initially. Further break above $17.2 can take silver higher to $17.5 and $17.75. Key supports are at $16.5 and $16.35. The outlook will turn negative only if silver declines below $16.35. Such a break can take it to $16 initially. Further break below $16 can drag the prices lower to $15.5 or even $15.35.

MCX-Silver (₹39,596 per kg) futures contract failed to sustain its break below the 100-day moving average support last week. The contract fell to a low of ₹38,710 and has bounced back from there. The near-term view will remain positive for a rally to ₹40,100 and ₹40,215 as long as it sustains above ₹39,000. The contract can gain momentum if it manages to break above the 21-day moving average resistance at ₹40,215. Such a break can take the contract higher to ₹40,550 or ₹40,720 initially. Further break above ₹40,720 can target ₹41,100.

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