Developments over the last week were not encouraging for bullion as both gold and silver saw sizeable drops from their intraweek highs. The fall was largely down to rising yields on government securities. Soaring yields may not augur well because government bonds offer interest component in addition to safety, providing a better deal for safety-seeking investors. The 10- year US treasury yield stood at 1.169 per cent by the end of Friday compared to 1.071 per cent a week before. Consequently,gold price dropped by 1.8 per cent and closed the week at $1,814.1 and silver gave up all the gains it made early on the week and ended flat at $26.92.

Not just US treasury yields but also yields on Indian government bonds spiked. This can be attributed to higher than expected fiscal deficit numbers – 9.5 per cent of the gross domestic product (GDP) for FY21 and 6.8 per cent of the GDP for FY22 – as the government goes in for expansionary policies. The yield on Indian 10-year bonds rose to 6.071 per cent as against 5.949 per cent by the end of the prior week.

In rupee terms, gold lost 4.2 per cent and ended last week at ₹47,256 (per 10 grams) and silver lost 1.4 per cent as it closed at ₹68,738 per kg last week. Comparatively, silver has been better placed since the beginning of the calendar year as the year-to-date return of silver stands at nearly 1 per cent whereas for gold it is minus 5.8 per cent.

Adding to these woes, the dollar has been appreciating for the past couple of weeks and it is likely to extend the upside, again owing to yields going up which can attract investments into dollar denominated assets.

MCX-Gold (₹47,256)

Sellers were on a roll last week, dragging the price of gold futures on the MCX below the key support level of ₹47,700. The futures moved out of the consolidation range of ₹48,600 and ₹49,750 within which it has been trading for the past couple of weeks. As the support of ₹47,700 is invalidated, the near-term outlook for the yellow metal has turned negative and more price correction can be expected.

The near-term bearish view is substantiated by indicators such as the relative strength index (RSI) and the moving average convergence divergence (MACD) on the daily chart. Both the indicators have slid into their respective negative territories. Moreover, the price is now below 50- and 200-day moving averages (DMAs) and the average directional index (ADX) is indicating that there is a considerable downtrend momentum.

Therefore, in the short run, the futures price can be expected to soften to ₹46,000. A breach of this level can pull down the price to ₹44,700 – a level of utmost importance with respect to the long-term trend. Despite the short-term trend becoming weak, the chances of gold futures recovering to ₹56,000 in a year has not completely faded away.

In view of the above reasons, traders can initiate fresh shorts in April expiry gold futures for the near-term and exit those positions when price touches the support of ₹46,000. In case if price rallies from here, it can be confronted with the resistance levels at ₹47,700 and ₹50,000.

MCX-Silver (₹68,738)

Unlike gold futures, silver futures on MCX opened last week on the front foot. As against the previous week’s close of ₹69,706, it began with a gap-up at ₹71,650 and witnessed a rally on Monday and it even registered a fresh five-month high of ₹74,426 probably due to Reddit traders’ attempt to push up the price. However, the rally ended soon, and the price crashed in the very next session. Thus, the breakout of the crucial resistance of ₹71,600 was nullified as the contract gave up gains and ended the week at ₹68,738.

Though both gold and silver futures price tumbled, looking at the price action, silver does not appear to be as weak as gold. The contract stays within the rising channel on the daily chart, which it has been tracing since December last year. Also, the price is still above 21- and 50-day moving averages and the contract is trading above the short-term support of ₹65,000. The RSI and the MACD indicators remain in their respective positive territory.

The above factors suggest that despite the fall, the short-term outlook has not become bearish for silver. However, this does not mean an immediate recovery and the contract could consolidate between ₹65,000 and ₹71,600 for a while before establishing a trend. Until then, a range trading strategy can be suitable. Nevertheless, the major trend remains bullish towards ₹80,000 in a year.

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