Gold prices to remain under pressure till US Fed; trend looks bearish, support seen at Rs 48800
By Bhavik Patel
Gold hits 2020 pandemic lows as Fed rate hike expectations propels US Treasuries and Dollar higher. Gold and silver bulls remain frustrated that the risk aversion in the marketplace is not translating into more safe-haven demand for the two metals. Yesterday gold fell nearly $40 from daily highs to hit more than two-year lows. Previously for the past 2 years, buyers would emerge around the area of $1690-1685 but this week with higher US CPI and Fed’s commitment of taming inflation at the cost of the economy has scared bulls and gold made low of $1661. As we had stated earlier that $1690-84 was the region where buyers usually emerged and this time selling pressure was accelerated below $1684 as stoploss got triggered. Traders who had their long positions, held their longs with stop loss of $1684 and when that prices breached, it gave bears added ammunition.
US retail sales also came better than expected which again investors believe can give Fed safety to rate hikes aggressively. According to the CME FedWatch Tool, there is a 78% chance of a 75bps hike and a 22% chance of a 100bps increase at next week’s September meeting. On top of September expectations, it looks like the Fed will continue raising rates for the rest of the year, and that is weighing on gold. In this type of environment, investors are more prone to liquidate their gold positions than their equities. For gold to see a substantial recovery, the market needs to see a slowdown in rate hikes. And that could happen within the next few months as economic data starts to deteriorate, allowing the Fed to take its foot off the monetary policy tightening pedal.
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Gold in MCX has breached its swing low of 49700 and 49572. Trend is bearish as in COMEX it has breached its support of $1680. Next support comes at $1650 and $1622 while MCX support comes at 48800. Gold is looking vulnerable and more prone to fresh shorts. The only saving grace is that in MCX, momentum oscillator RSI_14 is at 29.75 i.e. in the oversold zone and in the past 3 years, gold has bounced from the oversold region. The most bearish condition happened around Mar 2021 when RSI_14 was at 26 but then price recovered. So investors who have a medium-term can wait for gold to come around the region of 48800-48500 where they can accumulate for medium term to long term basis. In the short term, till the FOMC, expect gold prices to remain under pressure.
(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.)