Gold, silver may continue to trade sideways to down as dollar index rallies; check support, resistance levels

By Tapan Patel

Commodity prices traded volatile during the week passed by with most of the commodities in non-agro segments witnessed selling. Crude oil prices managed to end in green while base metals traded weak on demand growth concerns. Bullion prices pared weekly gains in the second half of the week with rally in dollar index. The dollar index rose by 0.75% for the week in a rare move against widening deficit and higher stimulus.

Gold prices traded lower with spot gold prices at COMEX ended down by more than 1% to $1828 per ounce losing its shine for the second week of the year. Gold prices at MCX ended over half a percent down to Rs. 48704 per 10 grams for the week. The spot rupee appreciated by 0.24% against the dollar for the week. Gold ETF holdings witnessed outflows as holdings at SPDR Gold Shares fell to 1177.63 tonnes during the week from previous week’s 1182 tonnes. The CFTC data showed that money managers decreased net long positions by 46859 lots in the last week.

Silver prices plunged for the second week with spot silver prices at COMEX fell by 2.57% to $24.77 per ounce for the week. MCX Silver March futures ended in green by 0.83% to Rs. 64764 per KG despite selling in COMEX prices. The CFTC data showed that money managers decreased their net long positions to seven week low by 43395 lots in last week.

Bullion prices traded down for another week on strong investors’ appetite for dollar. The rally in the dollar index triggered selling in precious metals on Friday despite a fall in bond yields and weaker equity indices. The traders and investors engaged in a roller coaster ride during the week on mixed global cues. The expectations of more stimulus announcements from the Biden administration and ultra-low interest rates from US FED kept most of the downside limited in bullion prices during the week.

We expect bullion prices to trade sideways to down for short term with COMEX spot gold having resistance near $1870 per ounce and support at $1800 per ounce. At MCX, Gold February prices have near term resistance at Rs. 49700 per 10 grams and support at Rs. 47900 per 10 gram. COMEX silver spot has near term resistance at $26.70 per ounce with support at $23.50 per ounce. MCX Silver March has important resistance at Rs. 67500 per KG and support at Rs. 62000 per KG.

(Tapan Patel is a Senior Analyst (Commodities) at HDFC Securities. The views expressed are the author’s own. Please consult your financial advisor before investing.)