By Bhavik Patel
At the start of the year, the gold bulls party was popped by the US Fed hawkish tone. The Federal Reserve’s FOMC minutes that were released this week indicated a tight U.S. job market and rising inflation which might require the central bank to raise interest rates even sooner than many already expected. The minutes suggested that inflationary concern outweighed economic risk posed by the new variant of Covid-19. Rising interest rate helps US Treasury yields rise which is bullish for the US dollar. Both Treasuries and Dollar rising are negative for bullions. US bond yields were already rising for three weeks and after hawkish FOMC minutes, they have taken a big jump this week. On Wednesday, private jobs numbers also came higher than expected and this Friday, US employment numbers are expected to be released.
Expectation is higher than estimate which again will be bearish for precious metals. Economic activity in the services sector for the US grew in December for the 19th month in a row. Traditionally, this is the best time for demand for physical gold due to the wedding season in India and upcoming Chinese New Year. India saw record gold imports in the last three months but still as there was hardly any gain for gold in the year 2021, we saw the biggest annual outflow from Gold ETF in nearly a decade, losing approximately $14.1 billion in assets in 2021, which translates to around 195 metric tons worth of bullion.
In MCX, gold is near its support of 47000 taken in late Nov 2021. Trend is looking bearish as momentum oscillator RSI_14 is trading below 50. Gold is hanging near the 200 day moving average support. Next support for gold comes at 46700 while medium term support comes at 45000 which we feel is a good price point for positional long.
Currently, with the short term trend being negative, we would refrain from recommending long positions and would urge to wait for Non Farm payroll data to get published before taking any view. In COMEX, gold once again failed to breach $1830 and is languishing below $1800.
Silver, meanwhile, looks worse than gold. It has been trading below the 200 day moving average and the momentum oscillator is at 38 indicating there is room for downside. It is near its previous swing low of 60000 and has already breached trendline showing weak trend. Breach below 60000 will open doors till 57800 and we would recommend selling on rise in Silver.
(Bhavik Patel is a commodity and currency analyst at Tradebulls Securities. Views expressed are the author’s own. Please consult your financial advisor before investing.)
