Gold and silver prices made good progress last week, which makes the near-term outlook positive. Another encouraging factor is that November retail demand in India, one of the largest consumers of the yellow metal, remained strong according to the latest World Gold Council (WGC) report. However, India’s official gold imports fell to 72.1 tons in November – 19 percent lower month-on-month according to WGC. But it is worth noting that it was 43 percent higher than in November of last year. The Reserve Bank of India (RBI) added 2.8 tons of gold in November, bringing the total gold reserves to 750.4 tons.
Apart from this, Comex net long positions have also been positive over the past couple of months. According to the latest Commitment of Traders (COT) report from the Commodity Futures Trading Commission (CFTC), net long positions are 704 tons. Although it is below 784 tons in November, speculators seem to be optimistic.
In line with that, bullion’s performance was encouraging last week. Gold, on the international spot market, rose 0.8 percent and closed at $1.797.7 an ounce. Silver rose 0.9 percent and closed at $22.35 an ounce. Likewise, domestically, MCX gold futures closed the week at INR 48,594 (per 10 grams), achieving nearly 1 per cent. MCX Silver futures rose 1.6 percent and ended the week at ₹62,137 (per kg).
MCX Gold ($48,594)
February gold futures on MCX, which were slow in the first half of last week, gained momentum in the last two trading sessions. This broke the contract from the range of Rs 47,400 – 48,550 to the upside. The $48,500 breach has turned the short-term outlook to positive for the contract and more ground can be expected in the upcoming sessions.
Supporting the positive outlook, the Relative Strength Index (RSI) and Average Directional Index (ADX) are showing a new high on the daily chart. The Moving Average Convergence Convergence (MACD), which is currently in the neutral zone, is also trying to reverse to the upside. Moreover, the total number of outstanding open contracts (OI) of all active MCX gold futures increased to 11,523 contracts as of Friday from 11,025 contracts in the previous week. A weekly price rise combined with an increase in OI indicates a prolonged build-up.
The above factors clearly indicate an upward bias and the contract is expected to extend the rally from here. Although $49,600 can be an obstacle, futures contracts will likely reach $50,000 in a couple of months. Resistance is above this level at $52,500 and ₹54,000. On the other hand, $48,000 can provide good support in the event of a contract rejection. Subsequent support is 47,400 and 46,500 euros.
Given the bullish bias, traders can buy gold futures at current levels with a stop loss at $47,600. When the contract reaches INR 49,500, review the stop loss at INR 48,500. Exit at INR 50,000 because there may be a price correction from this level.
MCX – Silver (INR 62,137)
Silver futures (expiring in March) on MCX, which has been bearish so far, appears to be trying to reverse the trend. Although it fell during the first half of last week, it gained significant upward momentum on Thursday, recouping all the losses it incurred during the week. The recovery extended and resulted in a positive weekly close for the first time in the past five weeks. As the contract bounced off the psychological level of INR 60,000, there are good chances for the silver futures contract to cross the INR 62,500 barrier. The 21-day moving average (DMA) that coincides at this level means that it is a critical level.
There are positive signs such as the RSI and MACD, although they remain in the negative territory, they are showing signs of an upward shift. However, with the contract rebounding last week, the total number of Pending OIs for all active silver futures contracts decreased to 11,573 contracts on Friday from 14,366 contracts in the previous week. Therefore, despite the positive signs, traders can wait for further confirmation of the upside.
A break of £62,500 could strengthen the bulls’ grip which could take the contract higher. The closest resistance above $62,500 is located at $64,100 – 50-DMA. Subsequent resistance is at $66,250. On the other hand, if silver futures decline, it could find support at INR 60,000. Below is the support range from Rs 57,800 – Rs 58,700.
Given the prevailing conditions, one can now wait and initiate new long positions as soon as the contract crosses 62,500 RUB as this will turn the near-term outlook positive. The stop loss can be at $60,500. When the contract rises above $64,100, see your stop loss at $62,400. Clear the long positions at 66,250 INR.