The US Bureau of Economic Analysis last week released preliminary US GDP (gross domestic product) data for the first quarter of 2021, which was in line with the expected estimate of 6.4%. The data showed sequential improvement in GDP growth, with the figure for the previous quarter standing at 4.3%. Notably, the release said personal consumption expenditure (PCE) rose 3.7%, slightly more than the anticipated estimate of 3.5%.
In addition, the statement from the US Department of Labor showed that weekly jobless claims fell to their lowest level since March 2020; there has been a steady decline over the past four weeks. It was 4.06,000 last week against 5.53,000 the last week of April. The increase in PCE and the decrease in jobless claims reinforce the idea that the Federal Reserve could move closer to its intention to gradually reduce its asset purchase program. Once the data was released, the dollar appreciated slightly, dragging the bullion lower.
Nonetheless, on the trade front, gold continued to attract buyers as net long positions increased for the second consecutive month. According to the Commodity Futures Trading Commission (CFTC), net long positions on COMEX in May rose to 642.2 tonnes from 563.9 tonnes in April. This is a positive point as speculators seem to see better prospects for the yellow metal.
As a result, gold, which gained in the first half of the week, lost ground and ended with a weekly gain of 1.2 percent, closing at $ 1,902.6 (an ounce). . Silver produced a gain of 1.3% and closed at $ 27.88 (per ounce). Since the rupee has gained 0.6 percent against the dollar, gold and silver have underperformed in terms of the rupee. Gold futures (expiring August) and silver futures (expiring July) on the Multi Commodity Exchange (MCX) produced a gain of 0.5 and 0.7 percent as they closed at ₹ 49,150 (per 10 grams) and ₹ 71,611 (per kg), respectively.
MCX-Gold (₹ 49,150)
The MCX gold futures contract, which started off slow, started to gain momentum and rallied in the first half of last week. But after posting a high of ₹ 49,674 on Wednesday, the contract turned the tide. After declining in subsequent sessions, it closed at ₹ 49,150. The price development of the last two weeks shows that the contract is moving in a narrow range of ₹ 48,600 and ₹ 49,500. As the trend was largely flat, the outstanding open interest in the active futures contract fell to 13,176 contracts from 14,556 contracts a week ago.
The 21-day moving average (DMA) stands at ₹ 48,400 and therefore the price range of ₹ 48,400 and ₹ 48,600 will offer good support. The trend will remain bullish as long as the price remains above this support band. Corroborating the uptrend, the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) indicators remain in their respective positive territory and the Average Directional Index (ADX) shows that the rally has failed. not lost traction and that the bulls are stronger than the bears as it is.
As the trend maintains an upward bias, traders can hold existing long positions or initiate new buys if there is a dip. The contract will likely reach ₹ 50,000 in the short term. Exceeding this level can lead to a quick rally to ₹ 51,000. While ₹ 48,600 is the closest support, the following supports are ₹ 47,650 and ₹ 47,000.
MCX-Silver (₹ 71,611)
The July silver futures contract on the MCX has been trending sideways for three weeks. Even though it peaked at ₹ 74,222 a few weeks ago, it couldn’t maintain that gain and was fluctuating widely between ₹ 70,000 and ₹ 72,500.
While the price is above the critical support of ₹ 70,000 and above 50 DMA, there are some indications that point to weakening of the bulls. The RSI has gradually declined over the past two weeks and is now hovering in the neutral region. A slide below the midpoint of 50 would give the contract a bearish bias. However, the MACD remains in the bullish zone and steers the trajectory downward. The number of open interest pending active futures fell to 10,841 contracts from 11,406 contracts over the past week.
Despite the above indications, one can wait for the contract to break out of the ₹ 70,000 and ₹ 72,500 range before pulling the trigger. The direction of the breakout could give us clues about the next step in the short-term trend. A decisive breakout of ₹ 72,500 may make the uptrend in which the contract could reach ₹ 75,000. Above that level, it could reach ₹ 77,500. While a break in support at ₹ 70,000 could spark selling interest which may bring the future down to ₹ 68,000.