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Gold outlook: Precious metal on verge of big breakout; price heads toward Rs 50,000 per 10 gm

Analysts expect gold prices to trade up in the coming week with COMEX spot gold resistance at $1,860 per ounce and support at $1,800 per ounce. The break above $1,860 may lead prices towards $1,890 levels.

Mumbai / May 16, 2021 / 04:33 PM IST

Gold prices declined by 0.20 percent during the week to settle at Rs 47,667 per 10 gram on choppy trading and firm rupee. The precious metal came under pressure as the US dollar recovered. The dollar recovered last week as a stronger-than-expected consumer prices data stoked inflation concerns that could force Fed to raise interest rates.

The yellow metal fell in three out of five trading sessions on the MCX and ended the week with a loss of Rs 93. COMEX gold, on the other hand, rose $11.9 or 0.65 percent during the same period.

The bullion metal has been trading higher than 5, 20, 50 and 100 days' moving averages but lower than the 200-day moving averages on the daily chart. The momentum indicator Relative Strength Index (RSI) is at 58.06, suggesting bullish sentiment in prices.

Gold consolidated for the second week in an attempt to surpass the 200 simple moving average placed at $1,851. A break above the same will push the price higher towards the $1,900 level.

The price however recovered on Thursday as a dip in US Treasury yields bolstered the metal’s appeal as an inflation hedge.

Close

The CFTC data showed that money managers increased their net long positions by 2,9452 lots last week on hedge against inflation bets.

On the data front, a Labour Department report showed fewer Americans filed new claims for unemployment benefit last week.

The US dollar index slides 0.49 percent to close at 90.28 against the rival currencies. The dollar index ended with a gain of 0.07 percent through the week.

The spot rupee continued its uptrend and rose by 0.30 percent against the dollar for the week.

Gold ETF holdings witnessed inflows as holdings at SPDR Gold Shares rose to 1,028 tonnes from the previous week’s 1,025 tonnes.

“Gold prices ended in green for the second week after witnessing selling at the starting of the week. Gold prices rallied despite the firm dollar and rise in bond yields showing rare parity with gold. The dollar index ended 0.10 percent up to 90.32 marks while US 10 year treasury yields ended at 1.635 percent during the week. Gold bulls were driven by inflation worries after US Consumer Price Index grew by 4.2 percent in the 12 months to April for its largest increase in almost 13 years,” Tapan Patel, Senior Analyst (Commodities), HDFC Securities. 

“The dovish Fed stance and slower US economic recovery are the key bullish factors for gold prices. However, the central bank insists that these inflationary pressures are transitory and will fade as the economy makes a full recovery,” Patel added.

Kshitij Purohit, Product Manager, Currency & Commodities, CapitalVia Global Research Limited said: “Gold came back sharply after hitting 100 Days SMA on the daily chart and closed near downtrend line. If we can break above the Rs 48,300 level and give a sustainable daily close, then it is likely that we will continue to go much higher perhaps reaching towards the Rs 49,700-50,000 levels. However, we need to see a daily close above Rs 48,300 to put significant money into the market.”

The spot gold/silver ratio currently stands at 67.24 to 1 indicating that silver has outperformed gold. 

Spot gold settled with a gain of $16.67 at $1,843.27 an ounce in London trading.

Gold futures for June delivery jumped by Rs 239, or 0.50 percent, to settle at Rs 47,677 per 10 gram with a business turnover of 7,039 lots. The same for August surged by Rs 227, or 0.47 percent, to Rs 48,172 on a business turnover of 7,047 lots.

OUTLOOK

The upbeat economic data from the United States will put the US dollar back in the spotlight in the coming week as well.

However, market jitters over accelerating US inflation were calmed by Federal Reserve officials reiterating that price pressures from the reopening of the economy would prove transitory.

The Federal Reserve is likely to remain accommodative and that should provide some underlying support to gold. So, every dip could be buying opportunity as lower interest rates, along with higher inflation would typically create bullish market sentiment for the precious metal.

On the economic calendar front, next week is slightly thin, but building permits and home sales data could have an impact on prices.

TECHNICAL

Sriram Iyer, Senior Research Analyst at Reliance Securities said, “LBMA Gold spot on weekly basis is holding strong resistance near $1,845-1,861 levels and has bounced back from $1,807-1,820 levels which hold strong support for further upside moment. Support is at $1,820-1.803 levels.

“On the domestic front, MCX Gold June is sustaining above $47,200 levels, above which could see a bullish momentum up to Rs 47,800-48,200 levels. However, support is at Rs 47,100-46,800 levels,” Iyer noted.

Purohit sees MCX Gold future likely to continue its bullish momentum towards a psychological level of Rs 48,500. Traders can go for a buy-on-dips opportunity around the level of Rs 47,400-47,500, keeping a stop loss at Rs 46,980.

RECOMMENDATION

Reliance Securities advises its clients to buy Gold June futures near Rs 47,300 with a stop loss at Rs 47,100 and a target at Rs 47,800.

Patel expects gold prices to trade up in the coming week with COMEX spot gold resistance at $1,860 per ounce and support at $1,800 per ounce. The break above $1,860 may lead prices towards $1,890 levels. At MCX, Gold June prices have near-term resistance at Rs 48,400 per 10 grams and support at Rs 47,200 per 10 gram.

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Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Sandeep Sinha

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