By Bhavik Patel
Gold rose for the first time in eight months and in November it was the best monthly performance since July 2020. Gold is consolidating after Monday’s decline and has managed to cover more than 80% of the deep correction it had on 5th Dec (Monday). That shows that the decline on Monday is one-off as there was no follow-up selling and the trend is still bullish. Market participants are waiting for the latest information on inflation when the CPI (Consumer Price Index) is released next Tuesday and the Federal Reserve’s last FOMC meeting of the year concludes on the following day. Today’s PPI from the US will give an idea of what to expect from CPI next Tuesday.
Market participants have largely factored in 50 bps rate hike as according to CME’s FedWatch tool, there is a 79.4% probability of a 50 bps rate hike, with only a 20.6% probability of a 75-BP rate hike by the Fed next week. Dollar weakness has also contributed to the gains we saw in gold yesterday. Another reason for the US dollar decline is risk sentiment worldwide has up-ticked a bit this week as China has significantly eased up on its strict Covid lockdown measures, suggesting the world’s second-largest economy may start to pick up steam at a faster pace now. This element has been supportive to the precious metals market bulls. Long-term gold buyers are accelerating purchases.
The combined gold purchases from China, India, and central banks over the past trailing 12 months have far surpassed investment outflows and systematic trading flows. China’s gold reserves rose to 63.67 million ounces at the end of November 2022, compared with 62.64 million ounces at the end of October this year, data from the State Administration of Foreign Exchange showed. In MCX, prices are at 8-month high thanks also to a weak rupee. Just like last week, we would recommend waiting for the price to correct before taking a fresh position as gold is in the overbought zone. Momentum oscillator RSI_14 is at 71 and there is a negative divergence in daily chart where we are witnessing lower high in RSI_14 while higher high in gold prices.
So, caution is needed at the current juncture with any long position to be booked and wait for the price to correct till 53700-53500 for initiating any long position. Gold price is also far away from the 20 and 50-day moving average again showing the fact that prices are overstretched and there are chances for correction. Next week gold will witness higher volatility due to data from the US especially US CPI on Tuesday and the Fed meeting on Wednesday. So we again reiterate to book profit off the table in gold before important data next week and buy on dips.
(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.)