Gold, Silver may continue to trade with bullish bias as Covid-19, lockdowns keep risk premium high

By Tapan Patel

Commodity prices traded higher during the week passed by with most of the commodities in Non-Agri segment witnessing strong buying on weaker dollar on stimulus hopes. The dollar index fell by more than 1 percent to 90 mark for the week. Gold prices traded higher and ended positive for the week with spot gold prices at COMEX rallied by 2.39% to $1881 per ounce. Gold prices at MCX rose by 2% to Rs 50304 per 10 grams as stronger rupee capped upside during the week. 

The Gold ETF holdings continued to decline as holdings at SPDR Gold Shares fell to 1168 tonnes on Friday. The CFTC data showed that money managers increased net long positions to seven week high by 1091 lots in the last week. 

Silver prices rallied, reporting the highest gains amongst non agro commodities with spot silver prices at COMEX ended up by 7.70 percent to $25.81 per ounce. MCX Silver March futures gained by 6.55 percent to Rs 67907 per KG in line with strong global peers for the week. Money managers boosted net long positions to three week high by 43667 lots as per data published by CFTC. Silver prices extended gains on strong demand optimism in industrial metals from China along with demand for precious metals. 

Bullion prices witnessed breakout above short term resistance of $1876 in COMEX spot gold and $25 in COMEX Silver spot prices respectively. The accommodative stance form US FOMC with ultra low interest rates boosted buying in precious metals. The rising hopes for US relief package pushed dollar index down below 90 mark during the week. The surge in COIVD-19 cases across world and lockdown measures in UK, Europe and some parts of US may keep risk premium high in bullion prices.

We expect bullion prices to trade in current range with bullish bias for short term with COMEX spot gold having strong resistance near $1890/1910 per ounce and support at $1850 per ounce. At MCX, Gold February prices have near term resistance at Rs 50800 per 10 grams and support at Rs 49500 per 10 gram. COMEX silver spot has near term resistance at $26 and $27.50 per ounce with support at $24.60 per ounce. MCX Silver March has important resistance at Rs 69500 per KG and support at Rs 65000 per KG.

(Tapan Patel is a Senior Analyst (Commodities) at HDFC securities. The views expressed are the author’s own. Please consult your investment advisor before investing)