With inflationary levels at a 40-year high and no quick solution to curtail inflation from moving higher, it will likely continue to have a major impact on gold, taking the precious yellow metal higher throughout the year.
By Bhavik Patel
In a span of two weeks, gold has methodically moved higher gaining nearly $100. Gold price hit 8-month high touching $1900 on back of rising tension between Russia and Ukraine. Bitcoin and stocks are selling off, and people are looking for places to park their money. Gold is wearing a lot of different hats right now. With inflationary levels at a 40-year high and no quick solution to curtail inflation from moving higher, it will likely continue to have a major impact on gold, taking the precious yellow metal higher throughout the year.
Traders are expecting that US Fed won’t raise rates by 50 bps as less than hawkish FOMC meet downplayed aggressive rate hike or showing any predetermined plan to raise rates. At the start of the week, markets were pricing in a more than 50% chance of an aggressive move from the U.S. central bank at its next monetary policy meeting. However, since the release of the minutes of the FOMC’s January meeting, expectations have dropped to about 30%. US Fed clearly is favouring the labour market and willing to sacrifice short term high inflation. We believe that inflation remains high till the end of the year, then US Fed will start aggressively raising rates in the third quarter which gives plenty of reason for gold to remain elevated. The first-rate hike no matter the timing will be regarded as gold positive as it will set the U.S. economy on track for a sharp economic slowdown.
Another push gold prices are getting is from the tension between Russia and Ukraine. While Russia is stating that it doesn’t want war and is moving troops back to Russia, Western countries like Britain and US are saying Russia is adding more troops near the border and waiting for any pretext to invade. This has given a strong push to gold prices. We believe $25 is on account of geopolitical risk and whenever any de-escalation takes place, gold will retrace back at least $25. Above $1900, the next resistance for gold comes around $1923.
Fundamentals are strong and one should refrain from shorting gold at this point. In MCX, the next resistance comes at 51000 and support at 49000. In short term, gold is in the overbought region so caution is warranted not to be aggressive long but periodically to book some profits. Also, this is not the price to take fresh long position but buy in a staggered manner. Any level around 49600 is good for buying. Since prices have already moved far away from 20 and 50 day moving averages, we expect prices to retrace as historically prices always come near its moving average after stretching it as prices cant sustain such large moves for long time.
(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.)
TheSpuzz .. Click here to join our channel and stay updated with the latest Biz news and updates.