Gold price rises as investors flock to safe-haven metals, but the window for up-move may close soon

The window of upside momentum is closing fast with upcoming FOMC meet next week where US Fed may give a date for increasing rates.

On daily chart in MCX, Gold is near to one month high compared to two month high in COMEX because of strong Rupee. (Image: REUTERS)

By Bhavik Patel

Gold crossed its resistance of $1840 and Rs 48000 in MCX as investors are flocking to safe-haven metals amid inflation and geopolitical tensions. US labour market is also losing momentum as US weekly jobless claims jumped to 55K. The momentum is expected to continue till the start of the next week after which focus will shift to US FOMC meet. Gold already had a breakout yesterday after geopolitical tension between Russia and Ukraine started with Russia amassing its troops near the Ukraine border. That prompted gold to jump $30 on COMEX and after a long time had closed above its 2021 resistance of $1840.  

Inflation is another catalyst for gold’s momentum as this week UK’s inflation came at 30 year high while US and Canada’s inflation is at 40 year high. Despite Europe and Asia not enforcing any lockdown due to rising cases of Omicron which helps in keeping manufacturing activity going but the current inflation is also on the back of higher oil prices. If crude oil price increases, inflation increases as transportation cost increases. OPEC insiders are not ruling out $100 a barrel oil in the next few months in light of increasing demand and limited supply. So we expect inflation to remain sticky for at least 6 more months and gold will get benefit from that. High inflation will prompt US Fed to increase rates atleast 3 times in a year but we have seen historically that gold gains more when US Fed starts increasing rates. We also saw when big jump in gold prices occurred on Wednesday we also saw big inflow of $305 million went into the SPDR gold exchange-traded fund (ETF). It was biggest inflow since November and this is just one more indicator of traders and investors worrying about and acting upon rising and even problematic inflation. 

 In terms of seasonality too, January is the best month of the year for gold over the past five-to-ten year window. Improving physical demand especially from China is high during this time of the year when Chinese will enjoy their new year starting from 31st Jan.

On daily chart in MCX, Gold is near to one month high compared to two month high in COMEX because of strong Rupee. We have seen a crossover of 20 and 50-day moving average which again signals buying opportunity. RSI_14 is at 62 so there is room on the upside for upward momentum to continue. We believe the current momentum may take gold till 49000-49500 where it may face headwinds in form of hawkish US Fed. The window of upside momentum is closing fast with upcoming FOMC meet next week where US Fed may give a date for increasing rates. We might see knee jerk reaction and have to wait what market makes sense of US FOMC meet. So hold your long positions with levels of 49000-49500 and with stoploss of 47600.

(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.)

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