By Bhavik Patel
The optimism over rate cut in March has all but faded. The spillover is seen in precious metals where both gold and silver had retraced and gold is trading -2% year to date while silver is trading -5% year to date in COMEX.
Federal Reserve officials have stated that they will begin to pivot from rate hikes to rate cuts this year. It is the timing of the first rate cut that market participants have been attempting to anticipate.
Generally speaking, markets have been unduly optimistically expecting the first cut to happen as early as March, which Chairman Powell has made very clear is quite improbable. At this point, rates are expected to be lowered by the Fed as early as the May FOMC meeting, and by the June FOMC meeting, the rate-cutting cycle will most likely have started.
However gold still has not fallen as much as silver as one of the attributes for support for gold comes from geo political tensions. Gold gave back its late-2023 gains in January despite strong seasonal factors, but Red Sea tensions, election uncertainty, and eventual rate cuts is supporting gold prices at the moment.
Another factor which is keeping prices supported despite strength in USD and yields is physical purchasing from Chinese investors. Chinese gold purchases were strong last year even as the price of the precious metal hit new all-time highs on the local market.
The New Year will fall on Saturday, Feb. 10 this year. That can been seen by the high premium in Shanghai Gold Exchange. Chinese investors have fewer alternatives for investment as property market has collapsed and stocks are trading at three year low.
In MCX, Gold is stuck in range of 62100-62800 for past 5 trading session. Despite last week’s strong US data and hawkish statement from Fed, gold has not corrected but we don’t expect any strong upside either due to lack of any positive fundamental news.
The momentum oscillator RSI_14 is neutral at 51 and last two trading session saw narrow body candlestick pattern showing uncertainty and no clear direction among bulls and bears.
Any significant correction is only expected below 62000 and so traders should be hold their long positions with stoploss of 62000. For next week, on Tuesday, we have US CPI data which will see some volatility in gold prices and any fresh positions could only be taken after US inflation number.
(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.)