By Bhavik Patel
In last three months, gold was up by around 8% in COMEX and as markets are counting on the Federal Reserve to slow down its rate hike pace as inflation starts to cool but Fed did suggest that terminal rate is still far from current projection. Much awaited correction in both gold and silver happened after Fed chairman’s statement. Although the selloff was very subdued after FOMC statement, follow up selling was evident as the statement carried that inflation will remain persistent for longer than anticipated and interest rates will follow the same course. Powell said that the decision in February would be based on incoming data and financial conditions. But he urged that rates are not high enough yet.
The latest economic projections, also known as the dot plot, indicate that the central bank sees the Fed Funds rate rising to 5.1% next year, up from September’s projection of 4.6%. While the Federal Reserve signals further monetary policy tightening, it has lowered its growth forecasts for 2023 and raised its inflation outlook. In further interest rate projections, the central bank sees the Fed Funds rate falling to 4.1% in 2024 and then dropping to 3.1% by 2025. This means Fed Reserve will hold rates longer than expected which may affect gold prices in the long run.
Bank of England also raised 50bps rate hike as expected and gold price saw muted movement. BoE expect inflation to moderate in the first quarter of 2023. Traders meanwhile is getting opportunity to book profit as prices were already stretched too far from important moving average and gold needed the pullback if it wanted to run above $1820. Now with major data over and holiday season coming up, we don’t expect any major movement in Gold. However we have seen historically that gold does give big movement in holiday season due to low liquidity. So there might be some chance of gold taking support around $1780 during the holiday season.
In MCX, there are chances of more correction as buyers looks exhausted at the top. On weekly chart, there is formation of ‘shooting star’ candlestick formation which is a sign of reversal. On daily chart, we saw ‘Bearish belt hold’ candlestick format which again confirms selling pressure at the top. Gold needs correction if it wants to rally further as the recent move was too fast in too little time. Retail participation were playing catch up and usually they are the last to participate in the rally. We would recommend anyone who is holding long to book profits as gold will trade sideways due to upcoming holiday season. Correction till 53,500 could not be ruled out and we would recommend to take long position around that level with stoploss of 53,000.
(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.)