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Gold to trade sideways to down this week; Silver weak on fall in industrial metal as COVID cases rise in China

The rally in dollar and strong US bond yields lowered the appetite for precious metals despite market uncertainty.

gold, silver, bullion
We expect gold prices to trade sideways to down this week with COMEX spot gold resistance at $1870 per ounce

By Tapan Patel

Commodity prices traded lower with most of the commodities in the non-agro segment continued downside for the week except Crude oil. Bullion prices plunged on stronger dollar and volatile bond yields on expectations of aggressive rate hikes. Base metals traded lower on growing demand worries and weak China data as the nation is struggling to tackle COVID-19 outbreak. Crude oil prices managed to end in green for the week on tight supplies and higher demand ahead of summer driving season. The dollar index ended 0.87% up at 104.56 for the week. 

Gold prices traded lower with spot gold prices at COMEX fell by 3.82% at $1812 per ounce for the week. Gold June futures at MCX fell by 2.13% to Rs. 49873 per 10 gram capping loses on rupee depreciation. The spot rupee declined by 0.69% at 77.45 after hitting a new all-time low against the dollar for the week. Gold ETF holdings continued outflows as holdings at SPDR Gold Shares fell to 1056 tonnes from previous week’s 1082 tonnes. The CFTC data showed that money managers have decreased their net long positions by 9045 lots in last week.

Silver prices extended decline with spot silver prices at COMEX slashed 5.57% to $21.11 per ounce for the week. MCX Silver May futures fell by 3.52% to Rs. 59332 per KG for the week. Silver prices declined with fall in industrial metals amid rising COVID cases in China and weaker demand. The CFTC data showed that money managers have decreased their net long positions by 13557 lots in the last week. 

Bullion prices continued downside reporting fourth weekly loss as traders and investors weighed aggressive FED stance post record US inflation numbers. The rally in dollar and strong US bond yields lowered the appetite for precious metals despite market uncertainty. U.S. Federal Reserve Chair Jerome Powell said on Thursday that the battle to control inflation would “include some pain”, as the impact of higher interest rates is felt. The signs that central banks worldwide will implement an aggressive cycle of monetary tightening has impacted investment demand in gold. The geopolitical risk over Russia-Ukraine conflict, higher oil prices and China COVID worries are the supporting factors which may limit downside in precious metals. 

We expect gold prices to trade sideways to down this week with COMEX spot gold resistance at $1870 per ounce and support at $1780 per ounce. At MCX, Gold June prices have near term resistance at Rs. 50800 per 10 grams and support at Rs. 49200 per 10 gram. COMEX Spot silver has near term resistance at $21.90 per ounce with support at $20.60 per ounce. MCX Silver July has important resistance at Rs. 62500 per KG and support at Rs. 58000 per KG.

(Tapan Patel, Senior Analyst (Commodities), HDFC Securities. Views expressed are the author’s own.)

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