By Bhavik Patel
Gold is catching the safe-haven bid this week as market participants worry about the economic consequences of the Fed’s oversized rate hikes. Market participants have shifted their focus from raising interest rates to high inflation. Investors were aggressive buyers this week as they pushed the spot price by roughly $24 higher. Markets are also getting weary about stagflation and yesterday’s US ADP number came lowest since pandemic recovery began. This brought USD down and gold up. This data is always high on investor’s radars because it gives a glimpse into Friday’s nonfarm payrolls data. Any weakness in the numbers could help bring down the Federal Reserve’s hawkish stance and help gold prices move higher.
Concerns over slowing growth in the face of an aggressive Federal Reserve are stirring serious recession fears. We feel despite aggressive rate hikes, inflation will not subside considerably unless energy prices cool down. Russia’s invasion of Ukraine is creating a commodity shortage. Wage pressures in the U.S. are not easing and that should keep inflationary pressures going for a few more months. Market pricing for 50 basis points potentially in June and July is expected but looking at the tight labour market, September could be seen as a pause and introspect the economy before taking decision further. Atlanta Fed President Raphael Bostic has suggested that by September the Fed ought to pause to assess the state of the economy before tightening policy further.
In MCX, gold is near its resistance of 51350 and breach above that would take it to 52000. There might be some headwinds as the US Fed is expected to raise 50bps next week and USD has also started to rebound after falling from 104.9 to 102.30. RSI_14 is above 50 so momentum has started shifting towards bull in gold. Gold trend is neutral from previous trend of neutral to bearish as prices are now near 20 and 50-day moving average. Next week will be interesting for gold as on one side is the expectation that inflation is there to stay for a while and investors are also shifting from safe haven treasuries to gold but on the other hand, there would be USD strengthening as FED will hike interest rates. We expect gold to trade in the range of 50000-52000 next week with bias on the higher side during any dips around 50400-50000.
(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.)