Gold, silver halt two-week rally on strong dollar; will bullion prices resume upward march this week?

By Tapan Patel

Commodity prices traded mixed during the week passed by with Bullion prices traded lower while crude oil futures witnessed volatile trading on Suez Canal blockage. Base metals witnessed mixed trade keeping the lower trading range on a stronger dollar and China demand.

Gold prices traded lower with spot gold prices at COMEX fell by 0.73% to $1732.52 per ounce for the week. Gold prices at MCX ended down by 0.84% at Rs 44,642 per 10 grams as stronger rupee added pressure to the domestic gold prices. The spot rupee ended flat against the dollar for the week witnessing recovery in the second half of the week. Gold ETF holdings continued outflow as holdings at SPDR Gold Shares fell to 1037 tonnes during the week down from the previous week’s 1052 tonnes. The CFTC data showed that money managers increased net long positions by 1269 lots in last week. 

Silver prices ended lower with spot silver prices at COMEX plunged by more than 4.52% to $25.06 per ounce for the week. MCX Silver May futures fell by 4% to Rs 64,805 per KG. The CFTC data showed that money managers decreased net long positions by 3018 lots in last week. Silver prices traded lower with weak industrial metals on-demand growth concerns on pandemic worries.

Bullion prices halted two weeks’ rally traded under pressure as stronger dollar and rise in bond yields weighed on the prices. The rising virus cases in Europe and fear of lockdown measures boosted buying in dollar index against weaker Euro and peer currencies. The US bond yields surged on weak treasury auctions and Fed comments which added pressure to the precious metals. Silver prices witnessed selling on worries over demand for industrial metals as European leaders hinted of lockdown measures. The dollar index rallied by 0.91% at 92.76 for the week. The US 10 year treasury yields hovered near 13-month highs at 1.66% during the week. 

We expect bullion prices to trade sideways to up in coming week. Gold prices have held key support levels at $1680 keeping the range at $1720-$1740 per ounce. COMEX spot gold has important resistance near $1740/1760 per ounce and support at $1710 per ounce. At MCX, Gold April prices have near term resistance at Rs. 45200 per 10 grams and support at Rs 44,200 per 10 gram. COMEX silver spot has near term resistance at $25.60 per ounce with support at $24.50 per ounce. MCX Silver May has important resistance at Rs 67,000 per KG and support at R. 63,000 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.)