If gold struggles to give a weekly close above that level, then we may see gold trading in the range of 45800-46800 for next week.
By Bhavik Patel
The gold market saw a sharp pullback yesterday after the US Fed chairman’s tone was less hawkish than the last FOMC meeting. Powell testified that the US is still far from full employment triggering a double-digit gain in gold prices. The US dollar retreated after 3 days of gain and long unwinding was apparent in the safe-haven currency. So, short covering in gold along with buying the dip sentiment helped gold in MCX pass above 46500. In another setback for gold, the U.S. Congress on Thursday passed legislation to avert a government shutdown, but another test of President Joe Biden’s agenda lay ahead as the House of Representatives prepared to vote on a $1 trillion infrastructure bill.
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The US Fed still believes inflation is transitory and sees relief in the next coming months and the beginning of next year. Inflation is because of a bottleneck supply issue which he expects to resolve soon. This commitment to taper their asset purchase from Nov till the middle of next year is bad news for gold investors.
Gold needs to reclaim its old floor support of $1,750 before 50 DMA is in view at $1,786. Also gold is not a recipient of any near-term uncertainty like over debt ceiling, inflation worries or power shortage in China. All that has been channeled into the safety of the US Dollar and that has created pressure on Gold and Silver.
Silver is struggling as China’s manufacturing units are struggling with power shortages. Since silver is primarily used as an industrial metal, we saw silver lagging behind big brother Gold. The gold/silver ratio also points to the underperformance of silver in the near term. If silver declines below $21.65, it will move towards the support at $21.30. A successful test of this level will open the way to the test of the next support at $20.90.
After falling for the whole month, Gold finally saw some push yesterday although the daily chart still looks bearish. Short-term resistance is 47000 and gold needs to break that level before sentiment changes. The good thing for gold bulls is that gold has managed to take support around 45688 making a double bottom chart pattern which gives some solidity to support levels of 45688-45620. If there is follow-up buying or if gold manages to give a weekly close above 46850, then expect gold to test levels of 47250-47300 where the 200-day moving average is.
But if gold struggles to give a weekly close above that level, then we may see gold trading in the range of 45800-46800 for next week. The bearish trend in silver is expected to continue till 61400 is not breached and next week also we expect silver to face selling pressure at higher levels.
(Bhavik Patel, Senior Technical Research Analyst, Tradebulls Securities. Views expressed are the author’s own.)