By Bhavik Patel
Strong dollar has capitulated every asset class and gold is also one of them. Gold is at a six week low but in MCX it is at four week low due to the weak rupee. Falling crude oil prices, a strong U.S. dollar index and rising U.S. Treasury yields are all bearish elements punishing the metals markets bulls. Speculative positioning in Comex futures markets has dropped sharply since March as hawkish Fed narrative has driven money manager positioning to multi-year lows. Last week Fed Chair Jerome Powell also warned markets that interest rates could remain elevated for longer to make sure that inflation remains well anchored.
Buyers emerged once again near $1690 as previously too we saw gold taking support around that level. However breach below $1690 will take it to $1670 and $1650. In the near term, because of the Fed’s commitment of aggressive rate hike which is pushing US Treasury yield higher and US Dollar stronger, all asset classes are bearing the brunt of selling pressure.
Although the yellow metal faces significant downside risks, it also benefits from tailwinds including recession risk, a price-responsive physical market, already scaled-back positioning and elevated inflation. Gold will have some tailwind on back of recession fears as well as there are reliable signs of economic trouble. US 2 and 10 year yields are inverted by 35bps and 5 year/30 year by 5 basis point. If the Fed increases by 50 bps this September then we may see some short covering in gold prices. In the short term, the gold price will get its direction from macro data, especially the employment report, which will be out today.
In MCX, the trend looks bearish as prices are trading below the 200-day moving average. Momentum oscillator is near to its oversold region as RSI_14 is at 34 so there is still some room on the downside but major correction seems to be over. In COMEX, gold has support around $1690 followed by $1675 and $1650. 49500 and 49200 seems to be strong support for gold in MCX and one can start accumulating smartly around that level as risk/reward is not favorable for any short position right now. Let the market settle after today’s non-farm payroll data and then one can start accumulating at dips near 49500.
(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.)