MCX gold at all-time highs, difficult to predict future levels, still not overbought; dollar to lose value

MCX gold is trading at an all-time high, making it difficult to predict the next levels. There is further room on the upside as it is still not in the overbought zone.

gold | gold prices
Gold is getting strength from risk aversion as well.

By Bhavik Patel

Gold bulls heard what they were waiting for. After 10 consecutive rate hikes the Fed signaled that they may finally enact a pause of further rate increases at the next FOMC meeting in June. According to the CME’s FedWatch tool, there is a 79.5% probability that the Federal Reserve will pause at its June FOMC meeting and maintain its current benchmark rate between 5% and 5.25%. Gold futures which were trading in range of $1980 to $2020 prior to the event broke out from the range and are now flirting near record high in COMEX. It had already hit a high of $2085.40 briefly before retracing back around $2040. In MCX, it has already breached record high levels. 

Gold is also getting strength from risk aversion. The US banking crisis has not abated and there is concern of more banking crisis as Pacific Western bank tumbled more than 35%. Not just Pacific Western bank, Western Alliance Bancorp also saw a fall of 55%. This panic is also fuelling safe haven demand for gold. Even though the Fed has stated that they are monitoring the situation and the crisis is under control, many banks are exposed to commercial real estate, a sector which is expected to collapse due to remote work and companies downsizing their assets.

Despite high prices, gold will still look attractive as an investment as the US dollar will lose its value. BRICS have already started the trend of de-dollarization and now with the Fed pausing the rate hike, there are less chances of the US Dollar overseeing any rally.

It is difficult to predict the next level in MCX as gold price is trading at an all-time high. Trend still is bullish and there is further room on the upside as it is still not in the overbought zone as RSI_14 is trading at 66 on daily scale. Prices are far from its important moving average which states that prices are stretched but we have seen long periods of bullishness where prices have not retraced to their mean. Similarly right now with bullish sentiment arising from Fed pause to US banking crisis, we are unlikely to see any significant correction in gold prices. We would recommend waiting around 60,500-60,200 where one can take a long position via option with stoploss of 59,800.

(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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First published on: 05-05-2023 at 11:43 IST