International gold prices hit $4,000/ounce on Tuesday, an all-time high, continuing the trend of rising amid global headwinds. In this financial year, international gold prices have risen 30%.
In India, things have been better. In the current financial year, the yellow metal has rallied 37.5%. In October itself, it is up 6% in the first 8 days. \ However experts believe that there are signs that there could be some profit-booking coming soon.
Globally, issues like US shutdown and possibility of a Israel-Hamas peace deal are being keenly watched. The dollar index is also trading at a two-month high, nearing the 99 level, a potential trigger for profit booking in gold and silver.
Global headwinds fuel historic rally
Anuj Gupta, Head of Commodities & Currencies at HDFC Securities, said that “The dollar index rose 1.27% this week and is trading at 98.7. This is the first signal for profit-booking in gold & silver.”
Agreed Nigam Arora, a US-based algo analyst and author of the Arora report, said that, “Gold is very overbought and is vulnerable to a pullback.”
He cites the triggers like the strengthening dollar, US government shutdown ending and the Federal Reserve’s decision not to cut interest rates in October.
Among other reasons, bond yields are rising in France and Japan. If a new government in France can get the budget through, or in Japan, the prime minister-to-be clarifies that she is not going to let fiscal policy run amok, and not put pressure on the Bank of Japan on the interest rates, there could be a correction in gold prices.
Overbought market signals sharp correction
It’s not just gold, but even silver prices are rising steadily. Arora expects silver to move 1.7 times gold in either direction. This means the price fall, when it happens, will be 1.7 times faster in silver.
The correction, when it happens, could be sharp as the rally was also very fast. In the past few decades in a bullish market, very sharp corrections were seen in a short time, but in the medium term the rally continued.
Chirag Mehta, CIO, Quantum AMC, said that, “While the underlying factors are still positive for gold, given the sharp 30%-odd rally in a short period, we can’t rule out some correction. A 10-15% correction will be healthy in an overbought market, akin to what we have seen in previous bull markets of the 1970s or 2000s.” However, he believes that there is underlying bullishness among investors in gold.
Chirag Sheth, principal consultant at Metal Focus, a London-based bullion research firm, added that they continue to remain bullish and overall momentum will continue.