It is more of time than price correction in gold: Religare

Sugandha Sachdev

Gold prices have been testing the patience of the traders and investors for past many months. On one hand, the persistent concern about rate hike by the U.S. Federal Reserve this year, is not letting them break higher above Rs.29000/gms at MCX and $1300 per ounce at COMEX, while on the other hand, absence of any concrete evidences of global economic recovery is continuously keeping it in demand at lower levels. The price behavior is exhibiting relatively lower volatile environment. Is it that the worst has already been priced in and it’s a consolidation before we witness any major trend reversal? Well, as the assumption goes that history repeats itself, it can be very much so this time as well. If one looks at the long term charts of gold, it is pretty much visible that gold has underwent the stages of hibernation, whenever it witnessed sharp price erosion and eventually turned higher. Talking about the recent times, the latest leg of the upside in the prices that started to unfold in the month of March (from around Rs25500/10gms domestically and $1140 /ounce at COMEX) is still intact. Prices started picking up as the Fed became dovish when the U.S. growth slackened in the first quarter. A deferment in rate hike boosted gold’s charm, while some weakness that crept in the dollar and it went to test its three month ,further supported prices. The air strikes by Saudi Arabia on Yemen also led the investors rush towards the precious metal, considered to be a safe haven ,in times of geopolitical turmoil. Gold bulls were further fed by the continuing concerns emerging out of the Greece’s situation, with respect to a likely bond default and an eventual exit from the Eurozone. At the same time, the decision by the ECB to announce a fresh stimulus, further cleared the bearish clouds for precious metal. The icing on the cake was the steep selloff in global bond markets earlier in the month, that elicited a buying spree in bullion, pushing the prices higher towards $1232 per ounce and Rs.27685/10gms at international and domestic bourses respectively. Surging crude oil prices, after they bled profusely in the second half of the last year also fuelled concerns about building up of inflationary pressures, while pushing investors towards gold, a known hedge against inflation. It is however the U.S. Federal Reserve’s stance about interest rate hike, that will still turn out to be the pivotal factor for the gold prices hereafter. Recently ,the Fed chair has indicated that they are on course to raise interest rates this year, in case the economy continues to improve. She however, feels that the headwinds facing the U.S. economy have not fully waned. The Fed needs to see improvement in labor market conditions and also inflation firming to their target of around 2 percent before pulling the plug. Meanwhile, the latest economic numbers from the U.S. economy are not very encouraging and the Fed has acknowledged the same. The business investment ,household spending and the industrial production data, all have been faltering, which are setting the stage for a delay in the rate hike at least till September. Meanwhile, the markets will be now focused on the Non-Farm payroll data for May and the next FOMC meet due in Mid-June for further clarity on the rates. Though prices have faced some heat from the recent highs of around Rs.27700/10gms, all on back of the resurgent dollar, but then the bulls are expected to grab the center stage all over again and deliver their performance reasonably well in near term. Once the crucial barrier of $1230 per ounce is taken out, the doors would open for the next hurdle of $1300 per ounce. Levels of around Rs.26700-500/gms can be considered as a buying opportunity, eyeing the targets of around Rs.27700/10gms and Rs.28200/10gms in coming days, while a stop loss below Rs.26250/10gms can be placed on a closing basis.