• Manoj Jain

Gold prices are in an upward trend since the beginning of 2019, thanks to factors like the US-China trade war, a slower global growth, and geopolitical tensions. Global equity markets are under pressure and that triggers safe-haven buying in gold. Major central banks in the world are also increasing their gold reserves. The US-China trade war, geopolitical tensions between US and Iran, impending Brexit, the civil unrest in Hong Kong and the Democrats working toward impeaching President Trump have supported gold prices throughout the year. Gold prices closed at $1,312 last year and have gained around 20% from thereon in international markets testing a high of $1,566 in the month of September.

Even the domestic market has seen a rally in gold prices from Rs 31,391 per 10 gram to a high of Rs 39,885 per 10 gram during the same period. The next policy meet of the US Federal Reserve is scheduled next week on 29-30 October and the general consensus is, it could further slash key interest rates by 25 basis points.

The hope of further rate cuts, Brexit worries, and expectations of slower global growth are factors that support higher gold prices. After a robust gain in the last nine months, we expect price rise to pause at this point in time and consolidate in the range of $1,466-1,494 in the international markets. Prices are expected to consolidate in the range of Rs 37,500 to Rs 38,100 per 10 gram on the MCX. If the US fed cuts interest rates in the ensuing policy meet, gold prices could breach resistance levels of $1,500 in international markets and test $1,532-1,550 again.

If prices sustain above Rs. 38,180 levels on the MCX they could test Rs 38,500-38,600 levels again. A stronger rupee also capped gains of the gold in domestic markets. Indian foreign exchange reserves touched a lifetime high and flow in domestic equity markets increased after the corporate tax cut announcements by the government last month. We expect gold prices to consolidate for some time and the overall trend to remain firm.

Technical view

Gold prices are in an upward trend since May this year testing a high of $1,566 per troy ounce in the Comex division in the month of September. Prices have gained from a low of $1,285 per troy ounce to a high of $1,566 per troy ounce. From the high of $1,566, gold prices have corrected by around $100 per troy ounce. Prices retraced 36% in the current rally and took support again. On technical charts, gold is still looking firm and holds key support of $1,466 on the Comex division and is expected to consolidate in the range of $1,466-1,494.

It will show weakness only when it closes and sustains below $1,466 per troy ounce and could test $1,450-1,430 per troy ounce once again. But the chances of this happening are less. If it breaches and sustains above $1,500 it could extend its rally to $1,532-1,500 levels again. On the MCX gold has run up strongly in the last five months, prices having gained from a low of Rs 31,232 in the month of May to a high of Rs 39,885 in the month of September.

We expect gold prices to remain firm in the domestic markets with key support level at Rs 37,500. Gold will show weakness only when it closes and remains below Rs 37,500 levels. In that case, it could even test Rs 37,200-37,000 again. But the chances of this happening are less. If it breaches and remains above Rs 38,180 it could extend its rally towards Rs 38,500-38,600 levels. 

Disclaimer:

Views in the above report are the author’s personal view and need not guarantee any kind of profits. Investors shall consult with their financial advisors before investing in commodities. Investments in the commodity market are subject to market risk.

The author is Director & Head of Commodity Research, India Nivesh.