By Bhavik Patel
Gold has touched $2000 on fear of further banking turmoil and the Fed’s message about a potential pause in tightening. Gold is attracting new buyers as many traders remain nervous post-Fed and over how quickly will U.S. authorities be able to contain further banking turmoil. The ETF buyer is also supporting gold, with the Bloomberg data showing that gold-backed ETFs added more than 300,000 ounces in the last trading session, marking the biggest daily gain since last June. Retracting the US dollar is also working in favour of gold as now Fed is not going to raise rates from here on.
Although they have said they will refrain from cutting rates in 2023, but if they start cutting in later half of the year, we may see gold move above $2100. At present, there is no competition for gold. Due to a pause in rate hikes, US Treasuries will no longer climb while the equity market is under turmoil as comments from U.S. Treasury Secretary Yellen at a Senate hearing that the federal government has no plans to protect all bank deposits that are not FDIC-insured have spooked the market. Bitcoin is too volatile so there is only commodity which is shining and that is gold. We might see money coming back into equity segment once there is enough correction to see value buying but at the moment there is only one place to park money and that is gold.
Gold is overbought in MCX as momentum oscillator RSI_14 is trading at 69. Clearly, the strong run-up we saw makes us cautious to initiate a fresh buy at the current position. Instead of chasing the price, we would recommend to wait for a dip as risk/reward is not favourable to take a long position from here. Prices currently are trading above 78.6% retracement taken from the lows of 54771 and highs of 60455. Price is also trading far from its 20-day moving average which again indicates that it is overstretched and some mean reversion is likely to take place. So we would again recommend not to take a fresh position from here but wait till correction around 58500 for the expected target of 59600 and stop loss of 58000.
(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.)