By Bhavik Patel
Gold futures are trading above $1950 comfortably after USD declined due to ease in the banking crisis and softer Germany’s inflation. The preferred inflation indicator of the Federal Reserve, the PCE (Personal Consumption Expenditures Price Index) will be released today and forecast is that inflation will remain elevated. This will be positive for gold as the Fed is not in the position to continue hiking rates due to the fragile US bank’s balance sheet. There is a high probability of either a 25 bps rate hike in the next meeting or pause in rate hike. All-in all chances are very slim that Fed will hike after May’s meeting.
Silver has hit a two month high and is banking on the decline of the US dollar. The only concern for Silver is that its speculative position is 3.5K against -7.8K last week. The speculative position (net long position- net short position)is very low compared to Jan high when Silver was around 73000, at that time the speculative long position was around 31K while right now it’s at 3.5K indicating that participants are reluctant to take long positions at such high levels. Usually we have seen that high prices fail to sustain if it is not backed by speculative long positions. Gold on the other hand has healthy speculative long positions. Gold’s push above $2,000 was primarily driven by short covering, short positions dropped by 14,978 contracts to 43,861. CFTC Gold’s speculative position is at 158.6K vs 98.5K which is Jan high.
Going forward, gold will be in a sweet spot as inflation will continue to remain elevated and the US Fed will be forced either to cut rates or pause their rate hike due to banking stress. Both augurs well for gold. Even if there is a new banking crisis which will propel USD higher, gold will also gain due to risk off sentiment so we don’t see any major correction in gold for the time being. Overnight lending rate is pricing in four interest rate cuts this year.
In MCX, gold is flirting near its all-time high of 60455. RSI_14 is near the overbought zone as it is near 67. Major support is near 58400 while resistance is at an all-time high around 60455. Despites strong outlook in the near term, we are not comfortable in holding a naked long position at current levels as gold is due for some correction around its support zone of 58400. Price is far from its important moving average of the 20 and 50-day moving average so there will be some pullback in the near future. One can hedge their long position with Option PE or book profit and wait for a fresh long position around 58400.
(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.)