Derivatives

The precious metals are below key levels

Bullion posted weekly gain for the first time in the last five weeks on the back of a decline in dollar and drop in treasury yields. Gold and silver in the international spot market gained 2 and 3.2 per cent to close the week at $1,846.7 and $21.75 an ounce, respectively. Similarly, on the Multi Commodity Exchange (MCX), gold and silver futures appreciated by 1.9 and 3.5 per cent respectively. On Friday, gold June futures closed at ₹50,829 (per 10 gram) and silver July futures ended at ₹61,407 (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 (₹50,829)

The June gold futures on the MCX is back above the ₹50,000-mark as it went up by 1.9 per cent. However, the short-term bearishness remains and for this to be changed, the contract should decisively close above the resistance at ₹52,000. Until the price is below this level, the likelihood of the contract to drop to ₹48,000 will be high. Subsequent support is at ₹47,000. Nevertheless, the long-term trend is bullish, and we can expect a bullish reversal within the ₹47,000-48,000 range.

That said, one can hold bearish view for the short term. Last week, we suggested to go short at ₹49,870 and accumulate short when price moves up to ₹51,000. One can follow this strategy. Initial stop-loss at ₹52,200. When the contract falls below ₹48,000, tighten the stop-loss to ₹49,200. Book profits at ₹47,000.

But note that a decisive breach of ₹52,000 can attract more bulls resulting in a quick rally to ₹53,660, the nearest notable resistance. Subsequent resistance is at ₹55,000.

Glittering gold?

Short-term bearishness remains

Decisive breach of ₹52,000 can attract more bulls

Subsequent resistance is at ₹55,000

MCX-Silver (₹61,407)

The broad price range of ₹58,000-74,000 remains valid as the silver July futures bounced off the lower boundary of the range last week. The contract gained by 3.5 per cent. Ideally, the contract trading near the lower end of the range means the current price region is a good place to initiate fresh long positions. But since there are chances for gold to see a fall from here, it can weigh on silver as well.

Nevertheless, traders with higher risk appetite can buy silver July futures at the current level with initial stop-loss at ₹57,500. 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 ₹58,000 is invalidated. 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 21, 2022