Gold stays range-bound

Sharp fall in dollar index and continuing geo-political tensions support gold



Gold remained broadly range-bound between $1,280 and $1,295 per ounce almost all through last week. The break below $1,280 on Friday was short-lived and bullion prices reversed sharply higher from there to close the week at $1,291 per ounce.

Silver, on the other hand, fell to a low of $16.74 per ounce and bounced from there to close at $17.06 per ounce on Friday, up 0.6 per cent for the week.

On the domestic front, the gold futures contract moved in tandem with the global spot prices. The MCX-gold futures contract fell to a low of ₹28,777 per 10 gm on Friday and bounced back from there to close the week on a flat note at ₹29,167. The MCX-Silver futures contract closed the week marginally lower at ₹39,012 per kg.

Dollar beaten down

The US Fed Chair Janet Yellen failing to hint at the future monetary policy path in her much-awaited speech at the Jackson Hole symposium last week came as a dampener for the US dollar. This, coupled with the European Central Bank President Mario Draghi stating that the global recovery is firming, not raising any concern on the strong euro, knocked down the dollar on Friday.

The dollar index, which was managing to hold above 93 until then, fell, breaking below this support to 92.50. This, in turn, helped gold prices recover from a low of $1,276.

Supporting factors

The sharp fall in the dollar index and the continuing geo-political tensions are the two major supporting factors for gold at the moment.

North Korea’s missile tests over the weekend and the joint military drills by the US and South Korea continue to keep the uncertainty high in the market. Any new developments on this front might aid gold to gain safe-haven status and take its prices higher.

The sharp fall in the dollar index last week is turning the bias negative on the charts. A key support is at 92.40. If it manages to sustain above this support, the index can remain broadly range-bound between 92.4 and 94 for some time. But a break and a decisive weekly close below 92.4 will increase the possibility of the index tumbling to 90.5 in the coming weeks. Such a fall in the dollar index will clear the way for gold to surpass the psychological $1,300 mark for the first time since November 2016.

Gold outlook

The global spot gold ($1,291 per ounce) has a key resistance at $1,298. A strong break and a decisive daily close above this hurdle could boost the momentum. Such a break can take gold higher to $1,310 initially. Further break above $1,310 will pave the way for the next targets of $1,325 and $1,350.

On the other hand, if gold fails to break above $1,298, it can fall to $1,280 or $1,273. A range-bound move between $1,273 and $1,298 is possible for some time. The outlook will turn negative if the prices fall below $1,273. The next targets are $1,266 and $1,258. However, the bias is bullish on the charts and the possibility of the yellow metal breaching above $1,298 in the coming days is high.

On the domestic front, the MCX-gold (₹29,167 per 10 gm) futures contract is stuck in a sideways range between ₹28,800 and ₹29,450 over the last couple of weeks. A fall below ₹28,800 can take the contract lower to ₹28,700 initially. A further break below ₹28,700 can drag it lower to ₹28,300 thereafter.

On the other hand, if the contract manages to break the range above ₹29,450, it can test ₹29,750. A further break above ₹29,750 will pave the way for the next targets of ₹30,000 and ₹30,350.

Silver outlook

The global spot silver ($17 per ounce) has to surpass the resistance at $17.25 to gain strength. Such a break can take prices higher to $17.45 or even $17.70 thereafter. But as long as prices stay below $17.25, silver can remain range-bound between $16.6 and $17.25. A fall below $16.6 can take the prices lower to $16.3 or $16 thereafter.

The MCX-silver (₹39,012 per kg) futures contract is oscillating around ₹39,000 for more than two weeks. The outlook is positive for a rally to ₹40,000 as long as the contract sustains above ₹38,600. That said, the contract may come under pressure if it breaks below ₹38,600. Such a break can take it lower to ₹38,000.

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