MCX Gold Outlook: Watch out for Rs 50,000 level, investors await CPI data before taking positional positions

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By Bhavik Patel

It was carnage for gold this week from $1835, gold fell all the way to $1737 on recession fears. The US dollar index hit 107, the highest in 20 years. USD capital inflows created headwinds for all commodity-related assets. The gold market is mainly at the mercy of the US dollar, which is in an extraordinary uptrend. Lower oil prices have helped temporarily allay some fears that inflationary pressures continue to spiral out of control, which is negative for the gold market.

Right now, fears of recession and lower consumer and business demand for metals are outweighing the historically bullish aspects of higher inflation supporting the metals. It is difficult to understand that gold has bottomed out or that it is a momentary lull in selling pressure. Market participants will wait for the next key reports on inflation and employment data before concluding this. The first key jobs report is today and the next key CPI inflation report is next week. The US Fed is expected to raise the interest rate by 75 basis points. The US economy deteriorated as consumer confidence data fell. If the US Fed does raise the rate by 75 basis points, expect the selling pressure on gold to continue unless the US Fed becomes less hawkish or inflation eases.

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In MCX gold is yet to break above its support level of 50000 while in COMEX it has already broken above its support of $1786. The weak Indian Rupee and 5% import duties kept prices at MCX from falling. At COMEX, gold has support between $1732 and $1708. Recently, gold has rebounded from its $1732 support, so there is hope for consolidation if prices hold above this level. But the trend has turned from neutral to negative in the COMEX while in the MCX it is still neutral due to prices above its key support level of 50000.

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For the next week, prices of 50000 remain important and if prices break above this level a short position can be added with a stoploss of 50800 and a target of 49000. RSI_14 is still neutral at 47 so there is plenty of room down if gold breaks .

We also recommend that investors wait for the CPI report before taking positional positions as the market seems to be waiting for new triggers. Gold’s sell-off has slowed for now and we are not seeing heavy short coverage or new shorts indicating indecision in the market.

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(Bhavik Patel, Commodities and Currency Analyst, Tradebulls Securities. Opinions expressed are those of the author.)

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