Derivatives

Futures could witness a price drop

Despite the intraweek volatility due to the US jobs number, the bullion did not see considerable swing in price. In the global spot market, gold ended the week flat at $1,850.8 per ounce compared to $1,852.7 by the end of the preceding week. Silver, on the other hand, lost nearly 0.9 per cent as it closed at $22.91 per ounce as against $22.1 a week back.

On the Multi Commodity Exchange (MCX), gold futures (August expiry) was almost flat by closing at ₹50,970 (per 10 grams) versus ₹51,050 a week back. Silver futures (July series) depreciated by 0.7 per cent and closed at ₹61,669 (per kg) versus ₹62,116.

MCX-Gold (₹50,970)

The August futures of gold on the MCX wrapped up the week marginally lower at ₹50,970 against the previous week’s close of ₹51,050. The movement during the first half of the week could have meant more depreciation but a recovery towards the end of the week did the damage limitation job. That is, after declining to mark an intraweek low of ₹50,415, the gold futures pared losses to close at a higher level.

However, the contract is trading below the crucial resistance at ₹51,400; to be precise the resistance band of ₹51,400-51,600. The 50-day moving average (DMA) coincide at ₹51,600. Until these levels are breached, the bias will be bearish. From here, the price could drop to the prior low of ₹50,415. Below that level, the support is at ₹50,000. Subsequent support is at ₹49,640 where the 200-DMA lies currently.

Nonetheless, a breach of ₹51,600 can turn the trend bullish where the contract can rally to ₹53,000 quickly.

MCX-Silver (₹61,669)

Like gold futures, the silver futures (July expiry) too depreciated last week till Wednesday. But then, after making a low of ₹60,502 the contract rebounded and ended the week at ₹61,669. It had closed at ₹62,116 before a week.

While the broad range of ₹58,000-74,000 still holds true, the contract seems to have formed a range within these levels. That is, the contract now looks to be held in the range of ₹60,500-63,000. So, a break of this range can give us the next leg of trend. Below ₹60,500 the support is at ₹58,000. Note that a breach of ₹58,000 can result in the contract swiftly declining to ₹55,000 and probably to ₹52,000. A breakout of ₹63,000 can lead to a rally towards ₹65,000 – a resistance level. Above this, ₹66,800 is a hurdle.

As silver futures rebounded from the lower end of the broad range i.e., at ₹58,000 in mid-May, we suggested long positions. That is, we advised to buy 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 touches ₹66,800. Exit the longs at ₹72,000.

Published on June 04, 2022