By Bhavik Patel
Gold is trading at five week low after Fed members comment that they are overwhelmingly cautious about the timing of initiating the first rate cut. Market was getting ahead of themselves after December US Fed meeting when Fed changed its tone from hawkish to dovish and signaling their intent to cut rates in 2024.
Market was anticipating rate cut as early as March 2024 but now many Fed members along with Fed chairman continue to narrate that they are not in hurry to cut rates. The overly-optimistic belief of traders that the Federal Reserve would initiate its first interest rate cut of the year in March has declined from a probability of 64.1% yesterday to 53%.
At the start of the month, it was as high as 80%. Gold is near to its support zone of $2000 in COMEX and breach below that could take it to $1975. Yesterday we saw extension of selling pressure after US retail sales came higher than expected indicating strong domestic demand which will ease pressure on Fed to cut rates. U.S. Census Bureau report revealed yesterday that holiday shopping was much more robust than anticipated in December.
Many economic analysts were under the expectation that growth in the US economy is expected to slow in 2024. However, yesterday’s report suggests American consumer spending could remain resilient. Combine that with last week’s CPI (Consumer Price Index) which revealed that inflation did not cool in December, increasing by 0.3% on a seasonally adjusted basis after increasing by only 0.1% in November.
What could be highly supportive of gold prices is the possibility of increased tensions in the Middle East. In short term, we might see prices consolidating and drifting downwards as money managers have decreased long positions but have not added fresh short positions. Money managers decreased their speculative gross long positions in Comex gold futures by 20,051 contracts to 134,333. At the same time, short positions increased by only 639 contracts to 45,874.
In MCX, gold is expected to take support around 61000 where we might see some bounce back. Currently the fundamentals are bearish and below $2000, we might see sharp fall as long positions stoploss will get triggered. So one should refrain from taking any long positions and wait for correction around 61000 to go long with stoploss of 60500 and expected target of 61800.
(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.)