'Rise in Dollar index taking away sheen from Gold, support seen at Rs 42,600'

Since rising interest rates make bonds and other fixed-income investments more attractive, the money will flow into higher-yielding investments and out of gold, Nirali Shah, Head of Equity Research, Samco Securities said in an interview with Moneycontrol’s Kshitij Anand.

Appreciation in the Dollar index is also bearish for gold prices. Both of these events are putting pressure on the yellow metal which is likely to continue. The next immediate support on the downside is now placed at Rs 42,600 levels, she added.

Edited excerpts:

Q) A volatile week for Indian markets but bulls helped the index to close in the green above 15000. What led to the price action?

A) The week started on a strong note after India reported positive Q3 GDP growth and its GST collections crossed Rs. 1 lakh Cr for the fifth time in a row.

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But, the party was punctured by the end of the week because of the fluctuation in 10-Year US Treasury Yields which added to the volatility in global markets.

The pressure translated towards India as global sentiments was spooked by the US Federal Reserve Chair’s comments on interest rates and inflation.

Q) Any important events that are lined up in the coming week. And, which are the important levels one should track?

A) There aren’t any major events expected in India in the coming week, therefore all eyes could be on the US for key triggers.

Any unanticipated outcome of 3/10/30 year US treasury auctions could directly impact bond yields and in-turn equity valuation.

On the upside, the Nifty50 is likely to remain capped at immediate resistance of 15,270 whereas on the downside the immediate support is now placed at 14630. We suggest traders maintain a neutral outlook.

Q) Small & midcap relatively outperformed benchmark indices. What is powering rally in the small & midcap space?

A) Investors are turning towards broader markets due to improved earnings visibility and pockets of valuation gap. Large caps, on the other hand, have rallied in full swing and the majority of them are currently trading at overbought levels.

Also, as the Indian economy continues to recover, earnings are expected to grow much faster in the small & mid-caps due to their higher operating leverage.

Q) Technical might probably point towards the fact Gold might be entering the bear phase (a drop of 20% from highs). What is your call on the yellow metal in the short term?

A) Gold is expected to continue its correction phase as it failed to find a cushion at the lower end of the falling channel. Rising interest rates are not the best for gold as it is a lower-yielding asset.

Since rising interest rates make bonds and other fixed-income investments more attractive, the money will flow into higher-yielding investments and out of gold.

Additionally, appreciation in the Dollar index is also bearish for gold prices. Both of these events are putting pressure on the yellow metal which is likely to continue. The next immediate support on the downside is now placed at 42600 levels.

Q) Metals, Energy, as well as banking stocks remained in focus. What is leading to the price action there?

A) At the start of the week, metal stocks extended gains due to rising commodity prices resulting from a supply crunch. But, the sector failed to hold on to its gains as the rising yields caused a global selloff.

Meanwhile, energy stocks such as GAIL and ONGC rose as crude oil prices jumped to their highest levels in 14 months. The Nifty Bank also felt the pressure due to poor market sentiment.

Q) Any short-term ideas?

A) The IPO season in India is going on in full swing and March is expected to flood the gates of D-Street with more primary issues signifying exuberance of liquidity.

Value and cyclical stocks have gained traction in the past few months and investors should continue to keep their exposure towards these value and cyclical stocks.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.