Gold price today at 11-month low. Should you buy or wait for more correction
Gold price continued to remain under pressure for fifth successive week as dollar index climbed to 19-year high of 109.30 on Thursday. On Multi commodity Exchange (MCX), gold price August contract ended ₹125 lower at ₹50,103 per 10 gm levels on Friday whereas spot gold price lost 0.21 per cent and closed at 1706 per ounce levels.
According to commodity market experts, gold price is expected to remain under pressure as speculations are high about US Fed increasing the interest rate by 75 bps after the US inflation hitting 41-year high. They said that spot gold price has immediate support placed at $1675-80 per ounce levels and can go up to $16200 per ounce levels in near term. On MCX, gold price is expected to find strong support at ₹48,800 whereas ₹51,500 levels would restrict upside in the yellow metal.
Speaking on the key headwinds for gold price, Sugandha Sachdeva, Vice President — Commodity & Currency Research at Religare Broking said, “It was the fifth consecutive week of decline for gold prices, wherein the precious metal slipped towards one-year lows in the international markets, though steep depreciation in the Indian rupee still cushioned the domestic gold prices to a certain extent. The key headwind for gold has been the persistent strength seen in the dollar index which jumped towards fresh two-decade highs. US annual consumer prices surged by 9.1 per cent in June as against expectations for an 8.8% rise, the highest in nearly four decades which indicates that inflationary pressures are quite rampant across the US economy. This has raised the bets of another large interest rate hike at the Fed’s forthcoming meeting, which is providing an upward thrust to the dollar index. Markets are now even pricing in the possibility of a 100 bps rate hike as against the previous expectations of a 75bps increase as the Fed might move up a gear with its focus on battling runaway price pressures. This has dented the investment appeal of precious metal.”
The Religare experts went on to add that the Bank of Canada also surprised the markets by raising the rate by a full percentage point this week in an attempt to tame inflation, while New Zealand’s central bank lifted its benchmark rate by 0.50 per cent, and so did the Bank of Korea.
Dollar index tapering gold prices
On how strong dollar index is tapering gold prices, Sugandha Sachdeva of Religare Broking said, “Higher interest rates tend to increase the opportunity of holding non-yielding gold and investors are seen moving away from gold to seek refuge in the dollar. Prices have been hit hard majorly because of higher interest rate projections, despite a risk-averse environment and the chatter around the growing recessionary risks. However, excessive rate hikes are likely to deteriorate the growth outlook and shall ignite the safe haven appeal of gold from a medium to long-term perspective, while lower levels will make it all the more attractive.”
Expecting further weakness in gold price, Pritam Patnaik, Head – Commodities — HNI and NRI Acquisitions at Axis Securities said, “The much-expected value buying in gold is still elusive, as the chorus for a weaker gold price becomes a lot louder. The market seems convinced that gold prices could well be on their way below $1700 levels. While the probability of the same remains high with wide expectation that the Fed could be well on its way to raising rates by as much as 1%, which in turn would make a non-interest yielding asset, like gold, look a lot less appealing. To add to gold’s vows, the surging dollar has dented gold’s allure. While the dollar index is experiencing a short-term correction phase after hitting a fresh 19-year high of 109.30 on Thursday. The asset is continuously refreshing its highs, which displays the strength of the global DXY bulls.”
The Axis Securities experts went on to add that the DXY has slipped to near the crucial support of 108.60 and may resume its upward journey after reclaiming the round-level resistance of 109.00, which will result in further pressure on gold prices. With an extremely hawkish mode adopted by the Fed, the prospects for gold don’t look too good looking forward.
Gold price outlook
“The coming week is expected to be volatile for gold with a negative bias. That said, gold prices seem to be declining toward the demand zone, which is in a narrow range of $1680 to $1688. We could witness some buying at these levels,” said Pritam Patnaik.
Expecting gold price to trade volatile with negative trend in near term, Sugandha Sachdeva said, “The near-term trend looks skewed to the downside, where prices look vulnerable to plunge towards its pivotal support zone seen at $1675-80 per ounce, which has been protecting gold prices for the last two years. If prices manage to sustain above the same, there is a strong probability of a recovery in prices, which looks quite likely given the breather that the dollar index has taken towards the close of the current week. However, any decisive close below the same zone would pave the way for a further decline towards the $1620-1580 per ounce zone. As for the domestic markets, prices look primed to drift lower but are likely to find a strong floor at ₹48,800 per 10 gm area, while ₹51,500 per 10 gm area will restrict the upside in gold prices in the coming days.”
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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