By Bhavik Patel
It was a see-saw ride for gold traders as prices fluctuated in positive and negative territory after the ECB meeting and Powell statement. Gold prices were pressured by comments from Federal Reserve Chairman Jerome Powell that again leaned hawkish on U.S. monetary policy which led to boosting the U.S. dollar index and U.S. Treasury yields, both of which had been weaker ahead of his speech. Powell’s comments reiterated his stance presented at the Jackson Hole central bank symposium, where he warned that not only will interest rates have to move higher, but they could remain elevated for longer to make sure inflation remains well anchored. Dollar index ahead of speech was on back foot as ECB raised interest rates by 75 bps splurging rally in Euro.
Going forward, the USD is going to be a safe asset as the Euro and the pound will be getting really hurt by the gigantic energy problem that they have, and the amount of money that they’re going to have to spend in order to alleviate people’s energy bills this winter. This would be bad news for gold and we don’t expect gold to give any substantial return this year.
In COMEX, gold has support in the range of $1690-1680. Four times since Feb 2021, gold has bounced from that level. Despite USD trading at 20 year high and US Treasuries trading above 3.00%, gold prices have not seen the destruction as seen in other asset classes like in energy packs or base metals. The recent low was also $1688 and $1691 in the span of two weeks that gold has bounced back. So the area of $1680 remains a strong support zone and gold may witness strong destruction below that level. On the upside, the rally will be limited owing to strong USD as the Fed is on a journey to kill inflation by monetary tightening.
In MCX, gold has made higher low and higher top indicating bullish trend thanks to weak Indian Rupee. MCX gold has outperformed COMEX gold owing to weak INR and is looking strong as prices are above the 200-day moving average on daily scale. Short term resistance comes at 50850 and 51500 while support comes at 50000. Ahead of the 20-21 Sept Fed meeting where US Fed will increase rate hike by 75 bps, expect gold to remain sideways because of strong USD. Any meaningful rally may only come post Fed meet as investors will be reluctant to take a long position ahead of the meet. Buy on dips should be the strategy until $1680 holds in COMEX and 49800 which was a recent swing low in MCX. Upside will be limited till 51000-51500 for next week
(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.)