Gold has headwinds in the form of rising US Treasury yields and strong US dollar which are rallying in anticipation of strong employment number and Fed’s action to soon taper their asset purchasing program.
By Bhavik Patel
Gold has been trading in the range of $1450-$1477 this week as traders are awaiting for US employment data on Friday. A soft countdown of the initiation of tapering the Federal Reserve’s $120 billion monthly expenditure has already begun. This month’s report for September jobs is critical because it will give the Federal Reserve the necessary information to make a concrete decision as to the timeline to begin to taper and when to raise interest rate next year. Gold market was also on back foot yesterday because of a rally in global equity markets.
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Trader and investor risk appetite remained a bit more upbeat Thursday as U.S. lawmakers have agreed on a short-term debt-limit expansion into December. Gold has headwinds in the form of rising US Treasury yields and strong US dollar which are rallying in anticipation of strong employment number and Fed’s action to soon taper their asset purchasing program. Crude is near 3 year high and so inflationary pressure is expected to increase which is giving a tailwind to gold prices. However headwinds are stronger than tailwinds so we don’t expect gold to rally higher very much. Perhaps around $1800 it might rally if today’s job data comes lower than expected. Hedge funds have also started reducing their long positions ahead of the data.
Silver meanwhile has shown some sort of base creation around levels of $22.15. We have seen money managers covering their short positions as negative sentiment is at multi-year high and short positions are also at multi-year high. Generally we take contrarian views and so we expect silver to outperform gold in short term. Silver should be gaining as base metal packs have also rallied.
Trend for gold is still bearish as it is below its 200 day moving average but short term, gold is trying to find some footing as it has crossed above its 20 day moving average but is under the 50 day moving average. The 45600 is good support as gold has taken support around that level twice in Aug and Sept. Gold has hurdles and resistance around 47250 to all the way 47850. For any runaway rally, gold needs to break this barrier. We would wait for employment data before recommending any position for gold.
Silver meanwhile is looking weaker compared to gold as it is barely touching the 20 day moving average and prices far away from the 50 and 200 day moving average. As we have mentioned that looking at deep negative sentiment, we would not recommend to hold short too much in silver and instead will look at buying opportunities near 60000 in MCX. Above Rs 61600, silver may rally till 63500 so next week our pick would be Silver in bullions.
(Bhavik Patel, Senior Technical Research Analyst, Tradebulls Securities. Views expressed are the author’s own.)