Gold snaps two-week fall

The yellow metal can remain in a sideways range before the uptrend resumes

After falling sharply for two consecutive weeks, gold prices made a strong recovery last week. Spot gold prices surged over 3 per cent intra-week to touch a high of $1,362 per ounce. However, it came off from this high and closed at $1,347, up 2.3 per cent for the week. The dollar index — which was recovering earlier this month — made a sudden downward reversal last week. The index fell about 1.5 per cent from around 90.4 and closed the week at 89.1. Weak dollar helped gold snap its two-week fall and reverse sharply higher.

Silver, on the other hand, surged to a high of $16.98 per ounce, but fell in the final trading day of the week giving up most of the gains made during the week. Silver has closed at $16.64 per ounce, up 1.7 per cent for the week.

On the domestic front, the gold and silver futures contract on the Multi Commodity Exchange (MCX) surged in tandem and also outperformed the global spot prices. The MCX-Gold contract managed to sustain above the psychological ₹30,000 mark and rose to ₹30,816 per 10 gm, up 2.7 per cent for the week. The Silver futures contract closed 2.9 per cent higher for the week at ₹38,665 per kg.

Weak dollar

The dollar index (89.1) has failed to sustain above 90 and has fallen sharply last week. Though the index has bounced from the low of 88.25 in the final trading session, the overall outlook remains weak. The level of 90 will act as a strong resistance and can cap the upside in the short term. While below 90, a fall to test 88 cannot be ruled out in the coming days. Such a fall will push gold prices further higher.

For the index, 88 is a crucial support. If the index manages to sustain above this level, a range-bound move between 88 and 90 can be seen for some time. But a strong break below 88, if seen, will increase the downside pressure. Such a break will increase the possibility of the index tumbling towards 85 over the medium term, which, in turn, will see gold prices revisiting $1,400 or even higher levels.

Outlook for gold

The strong recovery last week has not turned the outlook completely positive for gold ($1,347 per ounce). Though the broader uptrend remains intact, gold can consolidate in a sideways range for some time before the upmove resumes. Resistance is at $1,370 which can be tested in the near term. Inability to breach this hurdle can drag gold lower towards $1,330 or $1,320 again. As long as gold remains below $1,370, it can remain sideways and oscillate between $1,300 and $1,370.

Only a strong break above $1,370 will bring back fresh bullishness and boost the momentum. Such a break can take the yellow metal higher towards $1,390 and $1,400 thereafter.

On the domestic front, MCX-Gold (₹30,816 per 10 gm) is inching higher to test the crucial resistance level of ₹31,100. A strong break above this hurdle will see the upmove extending towards ₹31,500 and ₹32,000. But if the contract fails to break above ₹31,100 in the coming days, it can fall back towards ₹30,000 again. However, the outlook will turn negative only if the contract declines below ₹30,000. Such a fall, though unlikely at the moment, can take the contract lower to ₹29,500.

Outlook for silver

Global spot silver ($16.64) is facing strong resistance at $17 and has come off, failing to break this hurdle for the second consecutive week. This leaves the short-term bias negative for the white metal. Immediate support is at $16.5. A break below it will increase the downside pressure and drag the prices lower to $16 or even $15.75. On the other hand, if silver sustains above $16.5, it can bounce to test $17 again. A strong break above $17 is needed for silver to gain strength and rally towards $17.5 and $17.75.

MCX-Silver (₹38,665 per 10 gm) contract hovers below a key resistance level of ₹39,000. A strong break above it can take it higher towards ₹39,700 or even ₹40,200. But inability to breach ₹39,000 and a downward reversal thereafter can take the contract lower to ₹38,000 or even ₹37,500.

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