The precious metals extended their rally last week as the dollar weakened and the US Treasury yields fell. The greenback and the yields softened as Jerome Powell, in his speech last week, hinted the pace of rate hike could decelerate.
Gold and silver on the international spot market appreciated 2.5 and 7.9 per cent, as they settled at $1,798 and $23.15 per ounce, respectively for the week.
Similarly, in the domestic market, the gold futures (February expiry) gained 1.4 per cent to close the week at ₹53,850 (per 10 gram). The silver futures (March series) was up 5.1 per cent last week as it ended at ₹66,449 (per kg).
The price action indicates that both the precious metals have positioned themselves for further upside from here.
MCX-Gold (₹53,850)
The February futures of gold on the MCX, which was flat in the first half of last week, bounced off the ₹53,000-mark in the second half and ended the week at ₹53,850 compared to the preceding week’s close of ₹53,090.
The contract appears to retain the positive momentum as the cumulative Open Interest (OI) of gold futures on the MCX increased to 17,223 contracts from 17,039 contracts over the past week showing long build-up. Notably, the long build-up has been happening since the beginning of November. Thus, the uptrend appears steady.
We expect the contract to touch ₹55,000, a resistance, in a week or two. Subsequent resistance is at ₹56,000. In case there is a fall from here, it can find support at ₹53,000 and ₹52,500.
Trade strategy: As per our recommendation, traders would now be holding a long position taken at ₹52,100 in December futures. It closed at ₹53,265 on Friday. The stop-loss would have been revised to ₹52,300 as the price went above ₹53,200. Target was at ₹54,000.
Since this contract will expire on Monday (December 5), one can consider rolling over this long from December to February contract which closed at ₹53,850 last week. But adjustment needs to be done with respect to target and stop-loss levels based on the price action of February expiry. We suggest placing stop-loss at ₹52,500 and revise the target to ₹55,000 as the February series has been trading at a premium to the December series.
MCX-Silver (₹66,449)
Last week, the March futures on silver on the MCX rebounded on the back of the 20-day moving average (DMA) and closed the week at ₹66,449, gaining 5.1 per cent. The rally was accompanied by an increase in cumulative OI of silver futures on the MCX to 21,331 contracts from 19,479 contracts over the past week. This shows a fresh long build-up.
The chart shows that the contract is likely to appreciate to ₹70,000, a crucial level, in the near term. Above ₹70,000, the important level is at ₹73,000. On the downside, the contract has support at ₹64,250 and ₹62,300. Also, the 20-DMA lies at ₹63,210 now. Therefore, the price band of ₹62,300-64,250 is a good support.
Trade strategy: Traders can buy silver March futures at the current level of about ₹66,450. Add longs if price dips to ₹64,600. Place stop-loss initially at ₹62,300. When the price goes above ₹68,500, revise the stop-loss up to ₹67,000. Exit the longs at ₹70,000 as there is a decent chance for a price correction after the contract touches that price level.