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MCX gold above Rs 53000 will aim for Rs 54000; Upside looks limited on rising Treasury yields, US rate hike

Gold prices are consolidating and has so far ignored hawkish comments from Federal Reserve Chair Jerome Powell

MCX gold
Gold had moved from 52200 to 53600 after breakout from inverse head and shoulder pattern

By Bhavik Patel

Gold prices are consolidating and has so far ignored hawkish comments from Federal Reserve Chair Jerome Powell. Market came back into its tight trading range after touching $2000 at the start of the week. But strong US Treasury yield which is inching towards 3% is creating headwinds for gold. Powell said that a half-point interest rate increase will be “on the table” when the Fed meets in May, adding it would be appropriate to “be moving a little more quickly”. This is negative for gold but the market remains unfazed by the comment as participants have already factored 50 bps rate hike in May.

Helping gold is the fact that the U.S. dollar didn’t find much traction as the Federal Reserve’s monetary policy stance is a stark difference compared to the European Central Bank’s trajectory. ECB President Christine Lagarde, reiterated Europe’s more patient stance even as the region faces rising downside risks to the economy and upside inflation pressures.

The key theme for precious metals will remain Russia’s invasion of Ukraine, high inflation, economic growth concerns, and the upcoming interest rate hikes by central banks. Demand for gold has been increasing against rising inflation as we have seen healthy growth in the jewellery sector and inflows by Gold ETFs. The $1900 is good support for gold and any breach below that would push the outlook into a negative trend.

Near term charts have started showing signs of weakness as prices are trading under the 200 day moving average. The 51000 is decent support for gold in MCX while $1905 continues to remain strong support in COMEX. Gold has given breakout from inverse head and shoulder chart pattern on hourly chart in MCX and has retraced to test the neckline. If prices break 52100 then the pattern validation will end. 

Gold had moved from 52200 to 53600 after breakout from inverse head and shoulder pattern.  Now gold is on a crossroads where if it trades above 53000, the upside momentum can continue till 54000 while breaching the level below 52100 would open doors for 51000. Upside remains limited on account of rising US Treasury yields and expectation of rate hike from the US. So we are neutral for next week and one can trade long above 53000 or short below 52000. There is no clear direction for gold as long as it is trading in the range of 52000-53000.

(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.)

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