Sharp rally in the dollar and a considerable rise in the US treasury yields last week were enough to keep the downtrend in the bullion intact. The precious metals, which were already facing the heat, extended the decline over the past week as the dollar continued to appreciate. Gold and silver on the international spot market lost 1.9 and 3.5 per cent as they ended the week at $1,643.6 and $18.87 per ounce, respectively.

But in the domestic market, they fared better because of the weakness in the rupee which also took a hit due to the rising dollar. On the Multi Commodity Exchange (MCX), the nearest expiry gold ended flat at ₹49,401 (per 10 gram). Closest expiry silver futures lost 0.9 per cent to close the week at ₹56,233 (per kg). Below is the outlook for these contracts based on charts and derivatives data.

MCX-Gold (₹49,401)

The October futures of gold on the MCX, which traded briefly above the ₹50,000-mark, could not sustain it. On Friday, it gave away all the gains it had made for the week till then and closed at ₹49,401. This hints that the rallies are being sold.

The contract slipped below a rising trendline support, which coincided with ₹50,000, a fortnight ago. It remains beneath that line and also the 50-week moving average. The RSI and the MACD on the weekly chart show that there is more room to fall as the prices have just entered the bearish territory.

The fall in price is accompanied by an increase in cumulative Open Interest (OI) of gold futures on the MCX. It rose to 18,030 contracts on Friday as against 17,790 contracts on September 9. The above factors indicate a weak outlook for gold futures.

Therefore, the October futures contract is expected to align with the bear camp and see further decline from here. The nearest supports are at ₹47,500 and ₹46,500. We anticipate that the price can touch ₹46,500 before the end of 2022. A solid weekly close above ₹50,000 can turn the tide in favour of bulls. Until then, the ball will be in the bears’ court.

MCX-Silver (₹56,233)

The silver futures on the MCX have been on a descent since April this year. There are no signs of a bullish reversal yet and the bears are comfortable on the driver’s seat. Even during the last week, the attempt by the bulls to push the prices up was a failure as the sellers crept in at higher levels. The price band of ₹58,000-60,000 will be a tough barrier for the bulls to crack. This leaves the chances high to see further drop in the prices.

The contract has been forming lower highs and lower lows for the past five months and it formed an inverted hammer candlestick pattern last week after facing rejection at ₹58,000. Moreover, the cumulative OI of silver futures has been increasing steadily along the downtrend. It stood at 19,362 contracts on Friday versus 18,187 contracts a week ago. It was at 7,411 contracts by the end of the first week of April, just before the current downtrend was established.

The prevailing chart set-up shows that the silver futures could be falling towards the support at ₹52,000 in the coming weeks. This support might also be taken out given the current momentum, in which case the prices might even fall to ₹48,500. Note that the price band of ₹47,500-48,500 is a solid support against which the contract can make a U-turn and set itself up for a bullish reversal.

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