Pressure mounts on gold

Falling for second consecutive week, yellow metal breaks below key support

Bullion prices continue to remain under pressure. Gold prices fell for the second consecutive week while silver is down for the fifth consecutive week. The global spot gold prices were down over 2 per cent and closed at $1,212.46 per ounce.

Silver, on the other hand, slumped 6 per cent to close the week at $15.61 per ounce. Increasing expectation that the major central banks would join the US Federal Reserve in tightening the monetary policy continues to weigh on bullion prices.

On the domestic front, the gold futures contract on the Multi Commodity Exchange fell 2.3 per cent and closed the week at ₹27,784 per 10 gm. But the MCX-Silver futures contract tumbled 5.5 per cent to close the week at ₹36,231 per kg.

Strong US jobs data released on Friday may continue to keep bullion prices under pressure in the coming week. The US Non-Farm Payroll increased by 2,22,000, much higher than an increase of 1,79,000 expected by the market. The unemployment rate inched slightly higher to 4.4 per cent from 4.3 per cent.

Dollar index

The dollar index closed on a mixed note for the week after the job data. The index may remain range-bound between its support at 95.5 and resistance at 96.5. A breakout on either side of 95.5 or 96.5 will determine the next move. A break below 95.5 can take the index lower to 95.3 and 95. It may aid in slowing down the pace of fall in gold and silver prices. On the other hand, if the dollar index breaks above 96.5, it can rise to 97 or even 97.5. Such a rise will add more pressure on bullion prices and can drag them further lower.

Gold outlook

The immediate outlook for global spot gold ($1,212 per ounce) prices is negative. Strong resistance in the $1,220-$1,230 zone may cap the upside in the near term. A fall to $1,198 or $1,195 is likely in the coming days. Further fall below $1,195 will increase the likelihood of the downmove extending to $1,188 or even $1,180 thereafter.

The downside pressure will ease only if gold surpasses the hurdle at $1,230 decisively. The levels of $1,240 and $1,255 can be targeted thereafter. But such a strong rally looks less probable at the moment.

On the domestic front, the MCX Gold futures contract (₹27,784 per 10 gm) has declined below a crucial support level of ₹28,000, which was limiting the downside in the last six months. So, the outlook is bearish. A fall to ₹27,400 is possible in the near term. If the contract manages to bounce from ₹27,400, a relief rally to ₹28,000 can be seen.

In such a scenario, a range-bound move between ₹27,400 and ₹28,000 is possible for some time. But a fall below ₹27,400 can drag the contract lower to ₹27,000. The bearish outlook will get negated only if the contract breaches above ₹28,000. The next target will be ₹28,600.

Silver outlook

The global spot silver ($15.61 per ounce) has an immediate support at $15.4. If it sustains above this support, a bounce-back move to $16 is possible. If it manages to break above $16, prices can even recover up to $16.5 But if silver declines below $15.4, the downside pressure will increase.

Such a break will increase the possibility of the prices tumbling to $14.80.

On the domestic front, the MCX-Silver futures contract (₹36,231 per kg) has declined below a key long-term support level of ₹36,800. Inability to bounce above ₹37,000 from current levels may continue to keep the prices under pressure. The price action on the chart suggests that an immediate bounce breaking above ₹37,000 is less probable. So, as long as the contract remains below ₹37,000, a fall to ₹35,500 looks likely in the near term.

A further break below ₹35,500 will increase the likelihood of the fall extending to ₹34,500 or even ₹34,000 thereafter.

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