By Bhavik Patel
This will be the fourth weekly consecutive negative closing for gold after it touched highs of $1959. At present gold is at $1825 (seven week low), some $100 off the highs it made when sentiment of the market was that the US Fed will pause hiking rates after March and may start reducing by the end of 2023. That view had pushed gold from $1650 to $1950 in the span of two months but things have changed after this month’s solid US Jobs data and uptick in inflation.
Recent FOMC minutes published indicated that Fed is on the way to keep the rates elevated throughout 2023 until they get solid confirmation that inflation is on the way down to their required target of 2%. Even though half a point rate increase might not play out, the Fed will be hiking in March, May, and probably in June.
Yesterday’s updated fourth-quarter U.S. gross domestic product report came in a little hotter than expected which pushed bond yields higher and gold softer. We believe the Fed, after being behind the curve for the better part of 2022, will do whatever it takes to get inflation under control. This does not augur well for gold bulls and we may not see gold rallying beyond $2000 in 2023 under these circumstances. The only catalyst for gold bulls to be back in action would be if recession makes hard landing and the Fed is forced to change their policy stance and start reducing the rates.
Gold in MCX is at 50% of retracement taken from the lows of 51,240 to the recent highs of 58,847. In COMEX, support comes at $1800 and $1785 which we believe will be tested. That amounts to a level of 54,500-54,000 in MCX. Momentum oscillator RSI_14 is at 40 indicating bearish trend while prices have closed below the 50-day moving average for the first time since 8 Nov 2022. Closing below the 50-day moving average is significant indicating a shift in trend from neutral to bearish.
We believe the correction will continue till 55,200-55,000 where we might see some short covering and value buying. Any short position in gold should be covered around levels of 55,200 and one can start tentatively taking a long position around that level with stoploss of 55,000 closing basis.
(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.)