Inflation has not been slowing enough for gold prices to warrant a run-up to record highs.
By Bhavik Patel
Gold continues to trade above $2000 with markets recalibrating the expectation that there might be rate hike in May and rate cut starting after September. According to the CME FedWatch Tool, markets see a 70% chance that the Federal Reserve will raise interest rates by another 25 basis points next month. However, that is expected to be the last rate hike in this tightening cycle. Markets continue to price in a rate cut before the end of the year.US consumer retail inflation came lower than expected but Fed’s favorite inflation measure- core service excluding housing came slightly higher. FOMC minutes from the March meeting revealed several officials considered pausing due to the turmoil in the banking sector.
For the gold market, inflation is not slowing down fast enough to warrant a run-up to record highs. The Fed has stated that they are ready to cut rates and right now we got a disparity between what the market is expecting and what the Fed is actually saying. The minutes did note one comment that the Federal Reserve has moved closer to the end of its tightening cycle. The Fed is unlikely to extend its rate hiking cycle after May. Right now, gold is also getting a boost from central banks buying. In its monthly ETF report, the (World Gold Council) WGC said 32 tonnes of precious metal, worth $1.9 billion, flowed in global gold-backed exchange-traded products in March.
Gold continues to show underlying strength even though upward momentum has slowed. Gold saw some correction following stronger than expected US employment data last Friday but the shallow correction shows strength. In MCX, gold is yet to come in overbought stage as RSI_14 is trading around 65. Level of 61200 seems to be immediate resistance for the market and I believe very few would venture to take a long position at the current juncture. The 20 day moving average is trading around 59,500 and we have known historically that it functions as a magnet and since the gold price is far away from its 20-day moving average, we believe any dip is overdue.
Recommendation would be to go long around 59,900 where last swing low was and where the 20-day moving average is, with expected target of 61,100 and stoploss of 59,200. Next week, gold price is likely to consolidate with absence of any major trigger and run up already seen in last few weeks. Don’t expect gold to trade sharply higher next week but chances of profit booking will arise.
(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.)
Source:financialexpress.com