By Bhavik Patel
Gold and silver saw substantial gains in November following weaker than expected US CPI data. The sentiment is starting to change but it will not be a smooth road for precious metals. For starters, Fed members are still vocal about monetary tightening as one set of weak data cannot dictate that inflation is easing. Market expectations have been relatively consistent in the last few months, with expectations for the Fed Funds rate to peak around 5.00% next year. Gold bulls are waiting for the Fed to pivot from their path of rate hike and when that happens, bulls are convinced that gold will see a strong rally. This is what most of the analysts believed, however if we look at history, whenever the Fed had started easing rates after a hike, gold and silver both have struggled.
Gold also usually follows oil price as higher crude will lead to inflationary pressure. Crude oil is also languishing because of demand destruction owing to lockdown in China and weak economy in Europe. In the short term, gold is vulnerable to profit booking as prices have risen sharply in a small period of time. Any fresh momentum above $1800 will only come if USD falls sharply or Fed approaches a dovish tone.
In MCX, Gold is at a 6 month high and next resistance would be the peak of 53663 that happened in Apr. As mentioned, the momentum oscillator does show an overbought state as RSI_14 is at 70. Any traders who had a long position should book some profit and for fresh trade, we would recommend to wait for corrections around 52000-51500 before taking any long position. Gold price is already far away from the 20 and 50-day moving average which again shows prices are overstretched and pullback is around the corner. Next support now comes around 52000 which was Oct high followed by 51000 where conflux of 20, 50 and 200-day moving average is. For next week we would recommend to wait for any meaningful correction between 52000-51500 for a long position with stoploss of 51000.
(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.)
