'Buy gold futures for short term, may rally towards Rs 38,250-38,550'

Navneet Damani

Gold prices consolidated in a narrow range despite three major central banks releasing their policy statements.

In the recent past, the European Central Bank (ECB) did cut rates by 10bps and at the same time considered a stimulus of 20 billion euro every month. The dovish comments raised prospects of the Federal Reserve doing the same. This policy meet was the trigger that market participants were expecting for gold prices, though even after a rate cut there was not much a of reaction on the precious metal pack. Comments from the Fed governor were not very dovish, which left market participants confused.

Perspective

There has been a limited progress on the trade war but recently both the US and China have softened their stance. Both the sides have agreed to give an exemption on tariffs and also decided to resume talks, which were scheduled last week. Not much has been said about the meeting, other than the US calling it positive and the Chinese side describing it as constructive.

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Navneet Damani

VP-Commodity Research|Motilal Oswal Financial Services Limited

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The drone attacks on the Saudi Aramco oil facility added to the chaos and piled pressure on Iran. There have been multiple comments from various sources, Saudi officials and others on the impact of the attack. Till the time this uncertainty prevails, US-Iran tensions continue and a clear picture emerges on the trade war front, metal prices will be supported.

US President Donald Trump and Fed members’ comments have a bearing on gold prices. On September 26, Trump said a deal to end the 15-month trade war with China could happen sooner than expected and that the “Chinese were making big agricultural purchases from the US”. This a positive statement coming ahead of another round of talks between the two sides and could keep gold prices in check.

Last week, central banks were in focus, with the Fed, Bank of England (BoE) and Bank of Japan (BoJ) releasing their policy statements.

Market participants were watching the Fed meet closely, as the governor’s comments are one of the factors determining the trend for the dollar and precious metals.

Though the Fed provided yet another hawkish cut, the actions and comments were not going in sync. The Federal Reserve decided to cut rates by 25bps but denied to comment on future cycle of rate cuts. The Fed Chairman supported that the economy was recovering but hinted towards a caution following the US-China trade war.

BOE and BOJ kept their rates unchanged, maintaining a dovish stance, but did mention that they would take necessary steps, whenever required, with respect to the rate cut.

Inflation numbers from the UK and EU were in line with expectations.

Investment in gold edged up a bit, showing increase for the week ended September 22 and holdings currently stand at 883.59 tonnes.

On other hand, holding in ishares ETF decreased by 122.18 tonnes and stand at 11678.43 tonnes. CFTC position suggests that speculators continue to remain bullish on both gold and silver since December 2018.

Outlook

This week on the data front, market participants will be watching the manufacturing PMI numbers from the major economies.

The US is to release consumer confidence, housing numbers as well as durables goods numbers. Macro uncertainties, which are always the centre of attraction, will be important to watch for.

We expect precious metals to start a fresh rally on the upside in case of a fresh update on the trade war between the US and China, Brexit or growing tensions in the Middle East.

Technically speaking

Gold

After falling for three consecutive weeks, MCX Gold formed a Doji candle last week. Immediate support for the metal is at Rs 37,350-37,250 per 10 gram and price failure to break below this range will result in a positive move towards Rs 38,250-38,550.

So, buying is recommended for short-term but our bias will negate if the price breaks and sustains below the support area. Strong support for spot gold is placed at $1,480 an ounce, whereas resistances are in the $1,525-1,540 area.

Silver

MCX silver reversed marginally after falling in the early days of the previous week and closed on a positive note. Strong short-term support for the counter is placed at Rs 45,550 per kg and bias remains positive as long as the price holds above the same. Price sustained break above the previous week’s high of Rs 47,450 will lead the rally towards Rs 47,950-48,350 mark.

Buying is recommended for short-term, but our bias will negate if the price breaks below the support mark. Spot silver has supports at $17.75-17.50 an ounce, while resistance is at $18.30-18.50.

(The author is Vice President | Commodity & Currency Research at Motilal Oswal Financial Services Limited.)

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