The energy crisis and fears of inflation drove metal prices to skyrocket, and bullion, seen as a hedge against inflation, also benefited.
The latest US inflation data released last week by the US Bureau of Labor Statistics (BLS) showed inflation remained at an elevated 5.4% in September (up from 5.3% in August).
This makes the case for stronger gold and silver prices more compelling, and this trend can be expected to continue. Last week, gold and silver were up 0.6% and 2.7% to close at $ 1,767.3 and $ 23.28 an ounce, respectively. In the domestic market, gold futures rose 0.4% over the week to close at £ 47,213 (per 10 grams), while silver futures surged 2.4% to end the week at £ 63,271 per kg.
Bullish sentiment seems to be better reflected in silver due to its close association with other metals that have soared amid the energy crisis.
Net long positions on COMEX were unchanged over the past week and stood at 590 tonnes on Tuesday. It should be noted that net long positions increased a week earlier for the first time in about a month. It is expected to rise, which will have a positive impact on prices.
The close above the 21-day moving average (DMA) and the declining trendline of the week before last set the tone for gold futures on the MCX last week. December futures started the week positively and climbed Thursday to a two-month high of £ 48,100.
However, in the truncated Friday session, there was a significant drop in prices, as a result of which the contract abandoned most of the profits made and ended with a rise of only 0.4%.
Thus, the resistance bands at £ 47,800 and £ 48,000 seem to have managed to prevent the bulls from moving beyond these levels.
But the positive signs continue to hold, meaning the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) remain in their respective positive territory.
The price continues to stay above the 21- and 50-DMA. Going forward, gold futures are likely to recover their upward momentum and continue to move to devalue the £ 48,000 resistance that is likely to be overcome. Consequently, traders can go long in futures and maintain a stop loss at £ 46,200.
A break of £ 48,000 could intensify the rally and hence the contract could quickly reach £ 49,000 in the short term. In addition, gold futures will target £ 50,000.
As a risk management measure, traders can move the stop loss up to £ 47,200 if the contract goes beyond £ 48,000.
On the other hand, if the contract falls after Friday’s close, the nearest support levels could be found at 46,700 and 46,000 won. A decline below 46,000 won is less likely.
Last week, silver futures showed the best gains compared to gold futures. The December contract managed to break above the downtrend line on Wednesday, and on Thursday it closed above the key resistance of £ 63,000 and the 50-DMA, which is a bullish signal. It is noteworthy that on Friday the price of silver did not fall, unlike gold, thereby outperforming gold in weekly dynamics.
Bullish negative current is confirmed by RSI and MACD on the daily chart as they show a steady upward movement and price movement since early October hints at a healthy recovery and a high likelihood of a continuation of the rally.
In addition, the total outstanding open interest (OI) for all active MCX futures rose to 11,937 contracts on Friday from 11,376 contracts at the end of the previous week. An increase in OI along with an increase in the contract price means the creation of new long positions.
While 64,300 may be the immediate resistance, the contract can easily overcome it and rally to 65,600, where it may pause or even see a slight correction. Resistance above 65,600 is 67,700.
Taking into account the above factors, it is possible to open a long position at the current levels with a stop loss at 61,300 with an initial target of 65,600. Consider a partial profit reservation at this level.
If this resistance becomes invalid, carry over the remaining long positions to the next target of 67,700 ₹. Change your stop loss to 64,000 won if the contract price exceeds 65,600 won. Should the contract fall from current levels, it may find support in the 62,500 and 63,000 price areas. Subsequent support can be found at ₹ 61,500.