The gold market is expected to face a challenging environment as rising real interest rates and a stronger U.S. dollar will act as significant headwinds for 2021
By Bhavik Patel
The gold market is expected to face a challenging environment as rising real interest rates and a stronger U.S. dollar will act as significant headwinds for 2021. Gold prices are expected to struggle as the US Fed is looking to shift its monetary policy and will start tapering their assets by the end of this year and conclude in the second half of the next year. The latest economic projections show that the central bank committee sees the potential for one rate hike in December 2022. There is no support for gold right now as rising rates will create a dent in investment demand for gold. Gold is also not getting support from economic uncertainty either as Covid cases are declining world-wide except in the US.
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US consumer confidence showed that the US economy is on the right trajectory and only if the economy derails then it will put brakes on Fed’s plan to tighten monetary policies. Also Chinese real estate Company Evergrande might not create a contagion effect in financial markets which investors feel at the moment and that is why global stocks again are on rampant creating further pressure on gold as participants are in risk-on mode.
The US government is grappling with extending the US debt ceiling and any delay in that could give some tailwind to gold prices. So next week, we expect gold prices to remain under pressure as sentiment is negative shown by the fact that despite mixed flash US PMI data, gold prices failed to stage any comeback.
The pace of US economic growth cooled further in September after soaring in the second quarter due to labour shortages and supply constraints. Technically, gold is bearish as it is trading below $1750 at the time of writing and vulnerable to creation of fresh short positions if it bounces back to $1775. Momentum oscillator RSI_14 is still above 30 which shows gold is not in the oversold region meaning there is further room on the downside. In MCX, support is around 45500 and prices are unable to sustain above 50 day exponential moving average. We believe levels of 45000-44000 is a good opportunity to accumulate gold.
Silver meanwhile continues to struggle as it is making lower highs and lower lows on a daily scale. It is trading at a fresh 2021 low and we are still bearish in silver. Since it is near to oversold region, we are expecting technical bounce back but don’t see any creation of fresh long positions for the time being.
Next support for silver comes at 58500-58300 in MCX and one should refrain from creating any long positions right now. Gold might form some base in the vicinity of 45000-44500 levels.
(Bhavik Patel, Senior Technical Research Analyst, Tradebulls Securities. Views expressed are the author’s own.)