Yellow metal might consolidate or correct from here on and it will need some strong bullish news for it to break above $2000.
By Bhavik Patel
Gold market is in a bit of pause this week after rallying till $2000. Although it was expected that the Federal Reserve would continue to keep interest rates on hold, it was unclear if they would actually carry out one final rate increase in December. Fed Chairman Jerome Powell hinted the central bank might be done raising interest rates for now but did not rule out future rate hikes. The probability of a pause in December has remained roughly at 80% this week. Just last month, the probability of a rate hike pause in December was only 54%.
Today’s evening Non-farm payrolls data will be important but more important would be upcoming US inflation number. A feature in the marketplace late this week has been the significant drop in US Treasury yields. A smaller bond issuance announcement from the U.S. Treasury this week and some weaker US economic data this week have pushed Treasury yields lower. The primary driver of gold prices is the demand from central banks. As of the end of the third quarter, central banks had bought a record 800 tons of gold, according to the most recent figures released by the World Gold Council. Purchases are expected to reach or possibly surpass the yearly record demand that was reported last year, according to the WGC.
We have seen 20 million ounces of gold flow out of global ETF markets and that outflow has been consumed by central bank’s demand which is why we have not seen any major correction in gold prices.
Gold prices still are in the overbought zone as momentum oscillator RSI_14 is around 70. Historically we have seen prices correcting from such an overbought zone and even if there is a rally from the overbought zone, the rally has failed to sustain for a longer period. Right now on the chart, there is no reversal signal, but exhaustion is clearly seen in the chart indicating we may not see the new swing high that we saw recently around 61480 in MCX. Gold might consolidate or correct from here on and it will need some strong bullish news for it to break above $2000. With tonight’s upcoming FOMC, we would advise to keep positions light and wait for some correction before taking any fresh positions. Even if market rallies next week, positions should be kept light and with strict stoploss.
(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