By Bhavik Patel
This week we saw smart rally in Gold and Silver, first on back of the Israel and Hamas conflict, and second on weakening greenback and US Treasuries. We saw gap up opening at the start of the week as Hamas attacked Israel on Saturday and so risk premium started accumulating in gold. Gold last week was in oversold territory with 9 consecutive daily loss indicating reversal in prices soon. The conflict served as a catalyst to cover short positions and increase fresh long positions.
Yesterday all important US inflation number came and they came higher than expected which saw US Treasuries and green back rally pushing gold prices down. Yesterday’s report increased the probability that the Federal Reserve will raise rates at the December FOMC meeting. According to the CME’s FedWatch tool, there is a 31.4% probability that the Fed will raise their benchmark interest rate by 25 bps, and a 3% probability that they will raise rates by a 50bps at the last FOMC meeting of the year. While the probability of a rate hike in November rose from 9.1% yesterday to 11.8% today.
Although gold prices have bounced off last week’s lows, momentum appears to be running out of steam as the Federal Reserve signals that it will maintain its restrictive monetary policy until inflation starts to trend back to its 2% target. Immediate resistance for gold in COMEX is at $1900. We believe it will not be easy for gold to surpass $1900.
We will be bullish in gold when we get confirmation that bond yields have peaked. We believe they are on the cusp of being peaked but there is still room on the upside which is why it wont be easy for gold to surpass $1900 for now. Federal Reserve won’t be quick to cut interest rates as investors would like, but we are at the end of the tightening cycle. That is true for central banks globally. We are in a totally different place than we were last year.
In MCX, we would recommend to go long around Rs 57600 – 57500 with expected target of Rs 58400 – 58800 and stoploss of Rs 57, 000. Momentum oscillator RSI_14 is around 48 and above 50, we will get confirmation of trend reversing to bullish. Gold has closed above its 20-day moving average and next target on the upside would be its 50-day moving average which comes around Rs 58,400. That level is expected to be strong resistance as both 50 and 200-day moving average is around that zone. Similarly $1900 seems to be strong resistance for gold and any dips would be good opportunity to go long in gold for next week.
(Bhavik Patel is a commodity and currency analyst at Tradebull Securities. Views expressed are the author’s own. Please consult your financial advisor before investing.)
