Gold jumps to 1-week high above Rs 48,000/10 gm. Where is it headed?

Domestic gold and silver prices rose to the highest levels recorded in a week, tracking a firm trend globally as a drop in US yields amid a steady dollar boosted the appeal of precious metals.

MCX gold futures for June 4 delivery traded stronger the whole day and were last seen up 0.65 per cent at Rs 47,984 per 10 grams. Earlier in the day, the contract climbed to as high as Rs 48,070 per 10 grams — the highest intraday level recorded since May 10.

MCX silver (July 5) quoted at Rs 71,915 per kilogram, up 1.17 per cent for the day, having risen to as high as Rs 72,232 — also the highest since May 10.

The Federal Reserve sought to ease market concerns about rising inflation after data in the US showed consumer prices rose at a higher-than-expected pace in the world’s largest economy.

Comex spot gold traded 0.28 per cent higher at $1,848.49 per ounce at the last count after rising to a three-and-a-half-month high. Silver quoted up 0.65 per cent for the day at $27.60 per ounce.

The benchmark 10-year US Treasury yield was down 0.20 per cent at 1.63 per cent, retreating further from a one-month high hit last week. It had hit a nearly one-week low earlier on Monday. Lower bond yields decrease the opportunity cost of holding gold.

“Weak data from the US gave further support to the metal prices, as retail sales and industrial production numbers missed the expectations in April. Also, fears of rising inflation are weighing on consumer sentiment, adding to concerns about how quickly the US economy will be able to recover from the pandemic, and pushing away any noise about the changes in interest rate,” said Navneet Damani, VP-Commodities Research, Motilal Oswal Financial Services.

Separate data on retail sales and consumer inflation released in the US last week missed analysts’ estimates, weighing on the greenback and supporting precious metal rates.

The dollar index – which measures the greenback against six other currencies – gained as much as 0.31 per cent to 90.40 for the day so far. Strength in the greenback makes bullion less attractive for those holding other currencies.

The yield on benchmark 10-year US bonds rose to as high as 1.64 per cent. The dollar index was steady after falling as much as 0.17 per cent to 90.16 on Monday so far.

Back home, spot gold (22 carat) became dearer by Rs 348 to settle at Rs 47,547 per 10 grams in the national capital for the day. Silver followed suit, rising by Rs 936 to Rs 71,310 per kilogram.

The rupee rose for a second straight session to close at 73.22 against the dollar.

A rally on Dalal Street, as investor sentiment improved after daily Covid infections in the country came in below the 3,00,000 mark for the first time since April 21, limited the gains in precious metals.

The S&P BSE Sensex index jumped 848.18 points, or 1.74 per cent, to end at 49,580.73 and the broader NSE Nifty50 benchmark settled at 14,923.15, rising 245.35 points or 1.67 per cent from its previous close.

Typically, gains in equities dent the safe-haven appeal of precious metals, and vice versa.

Damani expects Comex spot gold to move within a range of $1,820-1,880, and MCX gold between Rs 47,750 and Rs 48,300 per 10 grams, in the near term.

“(Comex) gold strongly holds $1,800 per troy ounce last week and inflation fear and disappointing data could further support prices of both the precious metals this week. Gold has support at $1,828-1,810 and resistance at $1,854-1,866 per ounce,” said Manoj Kumar Jain, Director-Head of Commodity Research, Prithvi Finmart.

The nearby month contract at MCX has support at Rs 47,480-47,330 and resistance at Rs 47,920-48,055, said Jain. For silver, support is seen at Rs 70,700-70,100 and resistance at Rs 71,600-72,200 per kg.

He recommends buying MCX gold around Rs 47,600 for a target of Rs 48,050 with a stop loss at Rs 47,300 and going long on silver around Rs 70,500 for a target of Rs 72,000 with a stop loss at Rs 69,900.

Market participants will closely monitor minutes of the last policy meeting of the US central bank along with manufacturing and services data from major economies this week for cues.