Weak dollar, US-China tensions may continue to support gold in medium term

Tapan Patel

Commodity prices traded positive with bullion prices continuing to scale new highs and silver gaining the most last week. Crude oil prices traded higher while natural gas prices shot up by more than 24 percent last week on strong spot demand. Base metals prices witnessed strong recovery, except copper which ended in red during the week. The weakness in dollar index continued the inflows in commodities as the greenback fell below 93 mark.

Bullion prices extended the rally into the ninth consecutive week on strong investment flows. Spot Gold prices at COMEX hit an all-time high of $2075 per ounce while at MCX, Gold October futures made a record high of Rs 56,191 during the week. Silver prices continued outperforming gold with spot silver at COMEX rallied by 16 percent to the seven-year highs. The rally in base metals amid strong demand for industrial metals has supported silver prices to trade higher during the week.

Bullion prices rallied on safe-haven buying as investors switched to promising assets amid lower bond yields with fall in the dollar index. The Gold ETF holdings continued to hit record highs as holdings at SPDR Gold Shares rose to 1,262.12 tonnes on Friday. The CFTC data showed that the money managers have decreased their net long positions to seven-week low by 1,037 lots with prices hitting resistance at $2075.

Gold prices witnessed selloff on Friday with dollar recovery after positive US job market data. Prices also traded lower after gold prices at London Bullion Market Association (LMBA) fixed the spot prices at $2031.15 in afternoon auction which triggered a selloff in COMEX spot in the evening session.

The weaker dollar amid negative real rates and tensions between the US and China may continue to support gold prices in the medium term. US President Donald Trump has signed an executive order on Saturday partly restoring unemployment benefits. The action may give some hope to pass the $1 trillion coronavirus aid package. COMEX spot gold prices have formed bearish engulfing pattern on the daily chart.

We expect gold prices to trade higher after witnessing correction with near-term resistance at $2,100/2,300 per ounce and support at $1,980/1,920 per ounce. At MCX, Gold August prices have near-term resistance at Rs 56,800/58,000 per 10 gram and support at Rs 53,800 per 10 gram. Silver prices at COMEX have resistance at $30 per ounce with strong support at $26 per ounce. At MCX, September Silver prices have resistance at Rs 78,000/80,000 per KG, support lies at Rs 68,000 per kg.

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