Gold, Silver may trade sideways to down in near future but long-term trend remains positive

By Tapan Patel

Commodity prices traded volatile during the previous week with bullion prices witnessing sharp correction from recent highs while Crude oil and base metals extended weekly gains. The dollar index re-gained above 90 territory and ended 0.18% higher for the week with a rise in US treasury yields. 

Gold prices traded lower with spot gold prices at COMEX fell by 2.60% to $1849 per ounce suffering the worst weekly decline since November 2020. Gold prices at MCX shed more than 2% fell below Rs 49000 per 10 grams as weaker rupee limited downside during the week. The spot rupee depreciated by 0.24% against the dollar for the week. Gold ETF holdings witnessed inflows as holdings at SPDR Gold Shares surged to 1182 tonnes during the week from previous week’s 1171 tonnes. The CFTC data showed that money managers increased net long positions to 16 week high by 15268 lots in last week. 

Silver prices suffered heavy losses with spot silver prices at COMEX fell by 3.71% to $25.42 per ounce for the week. MCX Silver March futures plunged by more than 5% to Rs. 64231 per KG on risk off sentiments despite a rally in industrial metals. The CFTC data showed that money managers increased net long positions by 180 lots in last week. 

Bullion prices traded under pressure with recovery in US long term bond yields. The 10-year US treasury yields hit March 2020 highs which also triggered short unwinding in dollar. The traders and investors rushed to book profits in precious metals on risk-on sentiments with buying in dollar index. Bullion prices declined with positive investment sentiments with strong rally in equity indices. The US presidential election drama has ended with democrats taking control over senate paving the way to US President Joe Biden to peruse his agenda. The expectations of higher stimulus may eventually support precious metals prices with weakness in dollar. The current selling in bullion prices is expected to be short-lived with bullish long term trend. 

We expect bullion prices to trade sideways to down for short term with COMEX spot gold having resistance near $1900 per ounce and support at $1820 per ounce. At MCX, Gold February prices have near term resistance at Rs. 48200 per 10 grams and support at Rs. 50200 per 10 gram. COMEX silver spot has near term resistance at $26.50 per ounce with support at $24.60 per ounce. MCX Silver March has important resistance at Rs. 67500 per KG and support at Rs. 61500 per KG.

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