Gold set to close 2017 on a positive note

The near-term view is positive; prices can rise further in the coming truncated week

As the global financial markets enter the year-end holiday season, with the curtains ready to fall on 2017, gold is all set to make a positive close for the second consecutive year. The yellow metal, which was trading calm in a broad sideways range between $1,200 and $1,300 per ounce in the first half of the year, picked up momentum thereafter.

The yellow metal witnessed a robust rally between July and September as prices surged, breaking above $1,300 to test the high of $1,360. Geopolitical tensions between the US and North Korea helped gold to gain safe-haven status and triggered the strong rally.

Central banks spoilt the party

But the bullish momentum faded out thereafter as major central banks globally played spoilsport by deciding to tighten policy. The initial reversal in gold prices began in early September with the European Central Bank (ECB) announcing plans to taper its stimulus programme and the Bank of England signalling a rate hike.

The sell-off in gold intensified after the US Federal Reserve announced it would begin its balance-sheet normalisation from October. These events, coupled with a recovery in the dollar index since September, kept gold prices under pressure, pushing it to $1,235 earlier this month.

However, prices bounced back again from there and are currently at $1,274 an ounce. The precious metal is up about 11 per cent so far this year, with just under a week of trading left.

Silver under-performs

Surprisingly, silver failed to replicate the rally witnessed in gold in 2017. Silver has underperformed in 2017 against gold and is up just 3 per cent so far this year, at $16.33 an ounce currently.

Rupee caps gains

On the domestic front, the rupee growing stronger against the dollar capped the gains for gold investors. Both gold and silver futures contracts on the Multi-Commodity Exchange (MCX) failed to give strong gains. The MCX-gold futures contract, currently at ₹28,653 per 10 gm, is up just 4.4 per cent so far, this year. Interestingly, the silver contract is on the verge of ending 2017 in the red. The contract has fallen 2.8 per cent this year and is now at ₹37,954 per kg.

Gold outlook

The near-term outlook for gold is positive. Global spot gold ($1,274 per ounce) has an immediate support at $1,269. If it sustains above this, a rise to $1,280 is possible. Inability to break above $1,280 can trigger a pull-back to $1,270. But a strong break above $1,280 can boost the momentum. It could also mean gold revisiting $1,300 levels going forward.

The near-term view will turn negative if gold breaks below $1,270, depressing prices to $1,265 or $1,260. However, a fall below $1,260 looks less probable now as cluster of supports between $1,263 and $1,260 can limit the downside.

On the domestic front, the bounce-back from the key support of ₹28,000 in the MCX-gold (₹28,653 per 10 gm) futures contract is gaining momentum. Immediate resistance is between ₹28,750 and ₹28,800, likely to be tested in the coming days. A strong break above ₹28,800 will very likely extend the rally to ₹29,000 and ₹29,300.

Support is at ₹28,430. If the contract breaks below this support, a fall to ₹28,150 and ₹28,000 is likely again.

Silver outlook

Though global spot silver ($16.33 per ounce) managed to sustain above $16, it is not gaining momentum. However, the short-term outlook remains bullish. Silver can rise to $16.6 in the coming days as long as it stays above $16. A break above $16. Bullish as long as it stays above $16. Silver can rise to $16.6. On the other hand, the near-term view will turn negative if silver falls below $16. In such a scenario, the prices can move down towards $15.5 or even lower again.

The MCX-Silver (₹37,954 per kg) can test the immediate resistance at ₹38,200 in the near-term. A strong break above this can take it further to ₹38,500 and ₹39,000. Support for the contract is at ₹37,300. The outlook will turn negative for a fall to ₹36,650 if the contract declines decisively below ₹37,300.

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