By Bhavik Patel
Gold prices initially rallied after US CPI came lower than expected but the joy for bulls was short lived as prices corrected from $1807 to $1784. Gold prices again hit four week high and managed to breach the $1800 level but could not sustain it. The U.S. consumer price index report for July came in unchanged from June and up 8.5%, year-on-year. The report was expected to be up 8.7%, year-on-year, after a rise of 9.1% in the June report. Risk on attitude pushed safe-haven metals down and other riskier assets like equities rallied. The price deceleration in July is not meaningful enough for the Fed to start slowing down its tightening cycle just yet.
Core inflation, which strips out volatile food and energy costs, accelerated 5.9% from a year ago, surprising slightly on the downside but maintaining the same pace as in June. This shows that only the energy sector was down on a monthly basis on account of fall in crude oil prices but the food index continued to rise, increasing 1.1 percent over the month as the food at home index rose 1.3 percent. Minneapolis Fed President Neel Kashkari and Chicago Fed President Charles Evans reaffirmed an aggressive path for interest rate hikes. Kashkari reiterated the need to raise the Fed’s policy rate to 3.9% by year-end and to 4.4% by the end of 2023. The rate is currently in the 2.25%-2.5% range. So aggressive rate hike does not augur well for gold however the trend for gold still is bullish as it is trading above $1700. Any break below $1680 could trigger massive selling in gold prices.
In MCX, we have seen a buy crossover of the 20 and 50-day moving average. Prices which took support at the 200-day moving average around 49700 is the wide base for gold prices. Momentum oscillator RSI_14 is now comfortably at 60 after touching the overbought zone. Prices are expected to retrace till 51500 where the 20-day moving average is. Historically we have seen prices retrace till the 20 or 50-day moving average before prices start accelerating.
Trend still is bullish as we have seen higher top and higher low on daily scale. Trend will only be under threat when gold breaches and closes below 51200 as that would break recent swing low. For next week we would advice traders to wait for levels in the vicinity of 51500-51600 for taking a long position with stoploss of recent swing low of 51200 and expected target of 52500. Any dips in gold should be utilized for going long with stoploss of 51200.
(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.)