Gold and Precious Metals

Bullion cues: Time to be cautious about gold, silver?

Bullion were up last week extending the gains, though marginally, for the second week in a row as dollar continued to decline. Gold and silver in the international spot market gained 0.4 and 1.6 per cent to close the week at $1,852.7 and $22.1 an ounce, respectively. Similarly, on the Multi Commodity Exchange (MCX), gold and silver futures appreciated by about 1.2 per cent each. On Friday, gold June futures closed at ₹50,913 (per 10 gram) and silver July futures ended at ₹62,116 (per kg).

But notably, the dollar is still above its key support and both gold and silver are trading below some important levels. So, the short-term trend is expected to stay bearish resulting in a decline from here.

MCX-Gold (₹50,913)

The June gold futures posted a gain of 1.2 per cent. But looking at the price action through the week, the gain was largely because of the gap-up open at the beginning of the week. Apart from that, the contract was unable to extend the rally and was moving in the tight range of ₹50,700-51,200. Therefore, the contract lies below ₹52,000 and as long as it stays so, the bearish inclination will remain in place.

A breach of ₹52,000 can turn the short-term trend bullish resulting in the contract moving up to ₹53,660, the nearest notable resistance. Subsequent resistance is at ₹55,000. However, as it currently trades below ₹52,000, bears will be hoping to drag the contract to ₹48,000 and possibly to ₹47,000. Nevertheless, the long-term trend is up and ₹47,000 is a good level to accumulate long-term buy positions.

MCX-Silver (₹62,116)

Like the gold futures, the silver futures (July series) were largely flat for the week. The gain of 1.2 per cent happened towards the end of week as the contract attempted to break out of an important level of ₹62,500. But this was rejected as the contract settled below this level for the week. Thus, the broad price range of ₹58,000-74,000 remains valid.

As silver futures rebounded from the lower end of the range a fortnight ago, we recommended fresh long positions for traders who have more risk appetite. That is, we suggested to go long at around ₹61,400 with initial stop-loss at ₹57,500. One can hold this position.

When the contract rallies above ₹65,000 shift the stop-loss to ₹61,000. Then tighten it further to ₹64,000 when price moves above ₹68,000. Exit the longs at ₹72,000.

But note that a breach of ₹58,000 can result in the contract swiftly declining to ₹55,000 and probably to ₹52,000. So, consider initiating shorts if the stop-loss of the above long position is triggered. When price dips below ₹55,000 book 50 per cent of the shorts and alter the stop-loss to ₹58,000. Exit the leftover at ₹52,000.

Published on

May 28, 2022

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