By Pritam Patnaik
Gold prices remained firm on Friday, posting their first weekly gains since mid-April 2022. A retreating dollar index from its recent two-decade high of 105 levels and a potential recession staring us in the face, led by a slowing growth trajectory in the US and Europe, helped to revive demand for the safe haven. Prices have seen levels of sub $1790 and highs of $1848 this week. This sums up the volatility and lack of clear directional trends witnessed in gold. Broadly, the precious metal has been volatile owing to two broad factors, namely the dollar index and global growth concerns.
The possibility of a recession is quickly starting to turn into reality, led by the flagging economies in the US and EU. The aggressively hawkish stance adopted by the US FED only fans more panic in the system. A high-interest rate regime during periods of low growth is a recipe for a stagflation-led recessionary situation. With the Fed making its intentions clear for 0.50% hikes in its coming two sessions, gold prices could witness some headwinds. A respite in the one-way rally in the dollar index has given some respite to gold. The question is, will this last? We did witness some bargain hunting when the precious metals dipped below the $1800 levels, additionally, the holdings in gold-backed SPDR funds remained in growth mode, with subscriptions only increasing. This shows the resolve of the gold bulls.
That said, gold traders may witness further declines and the US Dollar Index should benefit from the latest cautious optimism. Against the backdrop of a well-supported USD and hawkish central bank-inspired upside in global yields, many gold bears will be eyeing a test of last week’s lows in the mid-$1780s.
If the 200-DMA, now supported at $1,838, gives in once again, then the next level will be $1,825. If $1800 is breached, we could see levels of $1,798. An uptick beyond $1,862 could propel prices towards $1890. Gold bulls will have to be patient to wait and buy on dips.
(Pritam Patnaik – Head – Commodities and HNI & NRI Acquisition, Axis Securities. Views expressed are the author’s own.)