By Bhavik Patel
Gold and silver continued to remain at elevated levels as Russia intensified its invasion on Ukraine. The financial repercussions from Russia’s actions have sent ripples through the financial markets with crude oil now priced above $118 per barrel. Russia’s military action has increased inflationary pressures worldwide. The dollar index held close to a 20-month high this week, making gold less attractive for holders of other currencies but despite strong US dollar, investors continue to buy gold on flight to safe haven assets as holdings of the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, rose 1.3% to 1,042.38 tonnes on Tuesday, their highest since July 2021. In a stunning inflation report coming from the Euro zone, its January producer price index rose 30.6%, year-on-year, mostly due to rising energy prices.
The US Fed is also not keen to be ultra-aggressive in lifting rates despite inflation running hot as Russia-Ukraine conflict has thrown uncertainty in the geopolitical scenario. Powell confirmed that he plans to support a traditional 25-basis-point hike at the upcoming March 15-16 FOMC meeting. Fed officials will also iron out a plan to reduce the central bank’s nearly $9 trillion balance sheet. Silver which had taken back seat in 2021 is showing some momentum after base metals.
Perhaps the strength in gold has begun leaking into silver; the signs of that catch-up trade are beginning to manifest. Silver has made a new higher low/higher high pattern and pushed above the psychological $25/oz area. This seems to have much to do with the correlation with gold and other precious metals being bulls. This time the breakout seems more genuine as it has been accompanied by higher volume.
In terms of resistance zones, $26/oz had been sticky in the past and could be once again. Beyond that, $28.90/oz is the more important one, and if prices get that high, the prominent $30.35/oz is next. For Gold, next resistance comes at $1975 while in MCX it is at 52500. Gold is near the overbought zone as RSI_14 is around 67. Prices have stretched too far from its 20 day moving average so in the short term, we might see some pullback. Fresh positions from hereon should be refrained and can be done via options which are less risky than futures. We recommend to wait for some dips near 51200-51000 with stoploss of 50000 for upside target of 53000 in short term.
(Bhavik Patel is a commodity and currency analyst at Tradebulls Securities. Views expressed are the author’s own. Please consult your financial advisor before investing.)
