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Gold to find next leg of rally by year-end, investors can stay long till yellow metal stays above $1,672/oz

For a shorter period, gold upside could be capped because of aggressive interest rates by global central banks over the next couple of meetings as well as rising dollar index and bond yield.

August 29, 2022 / 09:26 AM IST
Commodities, Gold

Commodities, Gold

Rahul Kalantri

Gold fell over one percent on Friday after Federal Reserve Chair Jerome Powell in his speech at Jackson Hole said the US economy needed a tight monetary policy until inflation was under control, a fact that means slower growth, a weaker job market and "some pain" for households and businesses.

Of course, inflation is now much higher, so the rates could go up in a more decisive way. However, it could be difficult for the heavily indebted and financially fragile economy to stomach much higher interest rates. My bet is that the Fed could raise the federal funds rate three more times at best. The economy has already weakened significantly since this projection; I wouldn’t be surprised if the Fed stopped its tightening cycle earlier.

Last but definitely not least, the American economy has already entered a technical recession, defined as a period of two quarters with negative economic growth.

What does it all mean for the gold market?

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Well, the US economy is going to slow down but that doesn’t automatically mean that the Fed will bring inflation under control. Rather, we could have stagflation, which should be positive for gold prices. But for a shorter period gold upside could be capped because of aggressive interest rates by global central banks over the next couple of meetings as well as rising dollar index and bond yield.

Dollar index could be the next key factor to give direction to gold in the future. We expect gold to stay in the range of $1,700-1,800 per oz, and by the end of 2022, it could  find its bottom and start its next rally. In the domestic market, rupee weakness will support gold prices in comparison to international prices. In rupee terms, we will see buying opportunity at Rs 49,800 - 50,100 while resistance is at Rs 52,240. Till the time gold is sustaining above $1,672 per oz in the international market, we suggest staying long on the yellow metal.

The author is VP commodities at Mehta Equities

Disclaimer: The views and investment tips expressed by experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.​
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first published: Aug 29, 2022 09:26 am
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