Derivatives

Gold futures could decline before a rally

Global gold ETFs (Exchange Traded Funds) registered net inflows of 43 tonnes in April. It is the fourth consecutive month of inflows showing steady demand. With that, the total global ETF tonnage has gone up to about 3,869 tonnes, which is just 1 per cent below the all-time high of 3,922 tonnes in November.

But last week, gold prices saw a marginal drop as dollar strengthened. Also, the interest rate volatility on the back of the Fed raising interest rate by 50 basis points had an impact. Thus, In the global spot market, gold fell by 0.7 per cent to end the week at $1,883.4 per ounce. Similarly, on the Multi Commodity Exchange (MCX), gold futures dropped 0.8 per cent to close the week at ₹51,343 (per 10 grams). But charts, as it stands, do not offer clarity on the near-term trend.

Spot gold ($1,883.4)

Gold, in the international spot market, opened on the back foot and it saw a decline on Monday. However, there was no follow through sell-off and for the remaining part of the week, it was largely trading sideways. Although the price action suggests that gold could see a decline from here, it can be arrested at $1,830 – a strong support. A rising trendline can also be seen which can potentially offer support between $1,830 and $1,840. So, after a decline to $1,830, gold can be expected to rally to $1,915 initially and then possibly to $1,960 in three to four months. But one should be note that a breach of $1,830 can trigger a fall to $1,770.

MCX-Gold (₹51,343)

The June futures of gold on the MCX declined on Monday and marked a low of ₹50,481, which was also the intraweek low. Thus, the stop-loss of our long recommendation at ₹50,700 was triggered. But then, the contract stayed sideways for the rest of the week. In fact, it attempted to rally towards the end of the week but was blocked by the price band ₹51,300-51,500.

Gold outlook

There is a likelihood of MCX Gold June futures contract depreciating to ₹50,000 in the short-term

However, there is likelihood of the contract depreciating to ₹50,000 in the short-term. An extension of the fall can drag gold futures to ₹49,000 where the 200-day moving average (DMA) lies. We do not expect the decline to go beyond this support and there might be a bullish reversal either at ₹50,000 or at ₹49,000.

On the upside, the price band between ₹51,300-52,200 is crucial as there is a confluence of resistances including the 50-DMA at ₹52,000. Therefore, considering the prevailing conditions, traders can stay on the sidelines. Fresh positions can be considered if the price falls to ₹50,000 or if the contract breaks out of ₹52,200.

Published on May 07, 2022