Gold price expected to move range-bound, focus on preliminary PMI data from major economies

Updated: October 22, 2021 2:35 PM

MCX Gold corrected after marking a high of Rs.48100 however, it is still holding above key support at Rs.46800 which also coincides with falling channel support.

In the near term we expect a range bound move between Rs.46800 – 48400 levels and price break of either side will only give further trend direction. (Image: REUTERS)

By Navneet Damani

Gold bulls witnessed some relief but towards the end of the week, some profit booking was seen amidst positive economic data from the US. Gold did attempt to break the loop at around $1750 and touch the $1800 mark. There were quite a few updates which triggered this move last week, although economic data like CPI, Retail Sales and world economic forecast from IMF took most of the focus. IMF cut global growth forecast by 0.1%, to 5.9%, with that it also showed concerns about the supply chain disruptions and rising inflation pressures which are constraining the global economy’s recovery from the pandemic.

On the other hand, gold prices were also influenced by the move in US Yields and the Dollar as the tapering uncertainty continues to hover in the market. Fed officials continue to keep their stance active on their tapering dialogue, even with labour market concerns we could expect an announcement in the next policy meet. Governor Powell has already mentioned that the tapering process could end by Mid next year, although the quantum and other details for the same could be interesting to watch for.

  •         Gold ranged from low of ~$1750 to high of ~$1800
  •         Silver ranged from low of ~$22.32 to high of ~$23.64
  •         Gold/silver ratio trading around 75 level, supporting the gold prices
  •         Comments from Fed Officials regarding Tapering will be important to watch for
  •         Focus this week will be on preliminary PMI data from major economies

Bullion’s initial reaction to the U.S. inflation reading was not very positive, as the Core CPI was reported in-line with the expectations on YoY basis; whereas U.S. CPI was higher than the expectations. Justifying a hedge against inflation’ dialogue gold prices were supported at lower levels. On the other hand, question on the labor market which started with non-farm payroll data continues, with a weak JOLTS Jobs opening data reported towards the end of last week. While, Retail Sales data was reported higher, as it was marked at 0.7% against the expectations of -0.2%, weighing on the gold prices.

Physical gold was sold at a premium in India last week amid hopes that key festivals will help a pickup in retail demand. This is the first time since mid-August that physical gold was sold at a premium in India, according to Reuters. The rise in demand can also be seen through the import number seen in September which was marked at 91 tonnes. China’s wholesale physical gold demand also increased ahead of the traditional National Day Holiday sales boom in October, driving up the local gold premium as a result.

Investment in gold witnessed an outflow for the week ended 17th Oct, 2021 and holdings currently stand at ~982 tonnes compared to holding of ~985 tonnes in the previous week. Holding in ishares ETF witnessed an outflow of ~86 tonnes and holdings currently stand at ~16987 tonnes. 

Outlook

Looking ahead, Industrial Production from the U.S. and preliminary manufacturing and Service PMI from major economies are a few important lookouts on the economic calendar. Updates regarding the Pfzier’s booster dose and application for starting the vaccination for the lower age bracket will be in focus. Volatility in U.S. Yields and Dollar are always an important factor for bullions. Few fed officials are lined up to speak over this week, hence their comments on tapering and policy changes will be important to watch. Keeping the above variables in mind, gold could continue to trade with a side ways to positive bias for the week.

MCX Gold corrected after marking a high of Rs.48100 however, it is still holding above key support at Rs.46800 which also coincides with falling channel support. Strong resistance for the metal is capped at Rs.48100. In the near term we expect a range bound move between Rs.46800 – 48400 levels and price break of either side will only give further trend direction. Price break below support will signify weakness towards Rs.45800 whereas break above resistance will lead the move towards Rs.49000 – 49350 levels.

MCX Silver traded with positive bias in the past few weeks but it failed to break above the strong resistance at Rs.63900. However, the metal is holding well above the falling channel support at Rs.61600 and overall bias looks positive for the same. Both the momentum indicators are also confirming strength for short-term. Price sustained break above resistance will lead the move towards Rs.65500 – 66500 levels. So, buying is advised as long as price holds above support.

(Navneet Damani is the VP- Commodities Research, Motilal Oswal Financial Services. Views expressed are the author’s own. Please consult your investment advisor before investing.)

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