Fundamental View
The dollar could potentially trade a bit higher next week
Dollar’s expected reversal and redemption in ETF’s gold holdings last week may disturb gold’s bulls
Gold’s bulls are less likely to move beyond previous week’s high i.e. $1366/oz
The Week Ahead
December gold closed higher despite profit-takers hit the metal hard during the later part of the week. The greenback was also under pressure during most of the week. However, the US dollar could now trade a bit higher next week. The build in the short positions in the Dollar Index may potentially cause a bounce next week, should they come out of their positions. Economic data next week in the form of rising retail sales,
improving Empire manufacturing index and Michigan confidence index, falling jobless claims and lowering import price index may provide some resistance to the dollar. Japan's machinery orders declined in August and UK's nationwide consumer confidence may have dropped in September. This will also help the dollar index recover some of its lost grounds. Dollar’s expected reversal may disturb the gold’s bulls and we may not see gold breaking its previous week’s high i.e. $1366/oz. Recent decline in ETF holdings may potentially stimulate some selling interest. Monday is a holiday (Columbus Day) perhaps lending to less exuberance, but later in the week, we will have more reports to potentially impact the market. KCTL expects gold to remain range bound with limited upside next week.
Technical Analysis – Gold
December futures gold prices hit fresh new high of $1366 and settled the week at $1345.30 levels. Though all the indicators are reaching overbought zone but prolonging move is continuously observed.
However, Friday’s move has given a slight cushion to the market. The Friday’s move was extremely volatile as bottom and trough distance was of $40 and settled higher. This suggests advancement on prices can be expected in the early next week. In other way, intraday correction has made the trend stronger.
In the daily price chart, market has taken a strong support from the trend line suggesting prices may rise in the next week. The candle stick pattern also suggests market may move till its previous high ($1368). Since, the trend has been continuously rising as market is near overbought zone in weekly chart, market may find tough resistance at $1366-1368 to crack down. Hence, initially prices may trade higher and likely to make a new high or may stay near the previous high (formation of pseudo top is likely). However, in the later part of the week may see a correction. Hence, it is also very important to find the support levels for the entire week. In general, last week’s low can be considered as a major support i.e. at $1313.30. However, intermediate support is also necessary to look and that can be around $1325 (Friday’s low).
Outlook: Looking at the above analysis, we expect initially gold prices may rise (likely to make a new high or may test previous high, technically called pseudo top). However, the sentiments may change in the later part of the week.
Technical Analysis – Silver
December futures silver prices traded higher and settled at $23.10. Market made a weekly high of $$23.53. Silver prices have been rising for the five consecutive weeks and show no sign of reversal. The momentum indicator weekly RSI_14 is treading at around 0.89. Though, it is near overbought zone but correction is not yet expected. In the last week there was a good correction on Friday which has made the trend stronger and suggesting prices can move further high. The resistances can be seen at around $23.40 and then $23.53 (last week’s high). If market clears the resistance levels may see prices testing $24.00 levels. However, we expect silver prices may remain within last week’s range. In the daily chart prices are maintaining above good trend line support levels. Moreover, prices are still trading below 45 degree- GANN angle giving a bullish trend to continue. This is also important to look at the support levels in the bullish trend. As we have mentioned the trend line support levels can be seen at $2280 then $2240 levels.
Outlook: We expect silver prices can move higher in the next week. However, market may find resistance to breach its previous high.
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