Gold likely to shine; buy October Futures above Rs 38,400 with a stop loss of Rs 38,100

Hedge funds and money managers reduced their bullish positions in COMEX gold and silver contracts in the week to September 10 by 42,981 contracts to 247,728.

Meanwhile, Comex Silver Speculators cut net long positions by 1,904 contracts to 61,561 in the week to September 10.

Domestic gold and silver prices tracked international prices and remained volatile during that week and ended with big cuts.

Domestic Gold futures fell by over 2.5 percent, while Silver futures fell by over 4 percent in the week ended September 13, 2019. However, Gold exchange-traded funds in India saw the highest inflows in more than six years as investors poured in money seeking safe havens amid record-high domestic prices.

Net inflows in August into gold ETFs rose to Rs 145 crore, the highest since December 2012, according to data from the Association of Mutual Funds in India.

MARKET OUTLOOK

Looking ahead, the fundamental bullish case for gold is firmly intact as expectations for monetary and fiscal stimulus continue to grow as deflationary readings globally and recession-like conditions persist.

During the weekend, the world got a shock from news updates following an attack on Saudi Arabia's oil facilities that cut more than 5 percent of global oil supply and increase tensions in the Middle-East.

Markets have started the week with a gap up and were trading with solid gains on the back of the Middle-East tensions.

However, unless the situation in the Middle East escalates into a war, gold’s gains are likely to be limited. More importantly, the Fed meeting scheduled this week will be key; rates cuts from the Fed have been discounted. However, guidance from the Fed will be important.

A dovish outlook from the US Federal Reserve will support gold. A less dovish/hawkish/neutral could keep the pressure on gold. According to the CME Fed Watch tool, 82 percent of people believe that the Fed will cut rates by 25 basis points, however, this figure is down from last week number of 95 percent.

TECHNICAL OUTLOOK:

MCX Gold October has been going through high volatility in the last few days. The daily chart suggests that prices have been intact in the upward moving channel and recently it managed to protect the same which is a positive sign.

However, there is yet no positive confirmation and one should wait for a clear breakout. Over the near-term, if 37,200 is intact on the downside where 50-Days EMA is placed, the trend will remain positive.

Only a break below this level will indicate that trend is reversing on the downside.

Hence, buy Gold October Futures above Rs 38,400 with Rs 38,100 as stop loss and target towards Rs 38,800 can be expected.

International Outlook:

LBMA Gold has arrived at the channel support along with Lower Bollinger Bands. This indicates that zone of $1,490-1,485 is the crucial support zone to watch for.

Last week prices spikeED near $1,525 level, hence move above $1,525 is required for resumption of up move towards $1,560 levels. On the other side, any break below $1,485 can result in deeper correction towards $1,460 levels. One should wait for a decisive breakout.

(The author is Head Commodities, Reliance Commodities)

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