By Bhavik Patel
Gold and silver prices are solidly higher after unemployment claims came higher than expected prompting investors to speculate that US Fed will not raise rates more, with gold hitting a two-week high and silver a six-week high. The market is considering a Federal Reserve interest rate decrease in the spring, which has given the precious metals bulls more gasoline after this week’s muted U.S. inflation data which sank the dollar index.
The Federal Reserve has said that it needs to see some weakness in the U.S. labor market before it starts looking at potential rate cuts. The metals bulls are looking at the easier Fed policy continuing to depreciate the U.S. dollar, continuing to push Treasury yields down and making for better global demand for metals now that interest rates may have peaked. It’s possible the markets are getting ahead of themselves and that is why we think gold needs to break $2000 for fresh upside momentum.
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We have seen this year $2000 proving to be strong resistance and gold has not been able to sustain above it. One of the concerning thing for US Fed is the expectation from US consumer is that inflation will remain elevated and so US Fed will not cut rates until it is sure that inflation is under control or US economy is going into recession. For now, the $1935 region remains as a likely near-term prop, with the psychologically important $2000 resistance mark in the bull’s immediate sights.
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The Relative Strength Indicator crossed above the 50-point barrier in the previous session and remains above it, and there’s clearly no sign of overbuying at this point, suggesting that the rally could have enough strength to get back to $2000 and, possibly up to late October’s peak of $2009. In essence we expect gold bulls to have upper hand over bears but the ceiling for gold is near and we only see rally of $20-$30 before gold topping out.
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In MCX, we expect gold to face resistance around 61500 which is the peak made on 30th Oct and sell off commencing from that levels. Although gold has room on the upside, but caution is needed as the upside is limited. Whatever bullish factors that has to come for gold this month has already come and so gold next week is expected to consolidate either at higher levels or some amount of profit booking may seep in.
(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.)
