Gold and Silver Rally but Dollar Strength Prevails

Gold and silver have rallied strongly helped by value buying but the overall strength of the dollar capped gains in metals.

Spot gold rose to as high as $1290.91 from the previous close of $1276.60, but is still not far away from the two-month low of $1275.75 touched on 21 August.

Silver traded up to $19.57 in the spot market from Monday's close of $19.33, and compared with the two-month low of $19.27 touched on the same day.

Platinum rose to $1425.70 from $1412.20 and palladium to $891.25 from $886.50.

The dollar index rallied to 82.61 on Tuesday, the highest since early September last year, up from Monday's close of 82.56. The greenback index has been up for the past six weeks and rallied more than 1.4% so far in August.

Traders said sporadic physical buying has helped the metals but the downtrend is unlikely to be reversed as the safe-haven flows to the yellow metal, owing to the recent civil and military unrests in various parts of the world, have now subsided.

Also, the latest data from the CFTC showed that net buy-side speculative positions for gold have dropped to 137,976 as on last Friday from 147,681 a week ago. For silver, they have fallen to 24,151 from 29,697.

The silver speculative positions touched a near four-year high of 49,278 in the week to 15 July. After a month, they have fallen more than 50%.

Gold Technicals

With the fall on 21 August, gold managed a break below the 61.8% Fibonacci retracement of the June-July rally. But the jump on Tuesday has taken the metal back near the 50% level at $1291, which is now its immediate resistance.

A break above that will open the doors to $1305.90 and $1322.20, the 38.2 and 23.6 Fibonacci levels, before retesting the July peak of $1345.28.

On the downside, gold will have its first support at $1279.90 and then $1268.20. The next level to watch is $1258.35 ahead of a retest of the June low of $1240.20.