After a phenomenal surge for three consecutive months, gold has been witnessing profit-taking for the last four weeks, tracking a rebound in the dollar index and talks of continued tightening by the US Fed.
Participants were hoping that a fall in inflation, though at a gradual pace, might prompt the apex bank to go easy on interest rates. However, a strong job market combined with upbeat macro-economic data in the US has given them further room to focus on tackling inflation, without worrying much about the hard landing of the economy.
The recently released minutes of the Fed meeting and US GDP data further reaffirm the same. Consequently, gold has retraced after making a high at Rs 58,847 level in the April month contract on MCX and is currently trading around Rs 55,710 levels. On the international front, it has slipped sharply from $1,975 and currently hovering closer to the upper band of the previous consolidation range ($1,780-$1,825).
Another important data set, the US Core PCE, which Fed closely watches to gauge the inflation trend, scheduled on Friday evening could further dent the prospect for recovery in gold if it comes stronger than expected.
Going ahead, since we don’t have any major event lined up, the movement of the dollar index, which has been on a recovery spree for the last four weeks, would largely dictate the trend. It has rebound to 104.59 after testing the low at 100.68 levels. It could face a hurdle around 105.5 next and that might help in some recovery.
Besides, the ongoing talks around the quantum of the rate hike in the March policy meeting would also be on the radar. Needless to say, any hint of a less aggressive stance on rates could again propel the gold prices higher.
From the technical perspective, Gold has retraced closer to the neckline of the triangle pattern on the weekly chart and is likely to find support around the Rs 54,500-55,200 zone. In case of a rebound, it could face a hurdle around the Rs 56,550-57,450 zone.
On the international front, we expect the $1,800-$1,820 zone to provide the needed cushion while a recovery towards the $1,870-$1,900 zone might attract profit booking again.
Despite the ongoing corrective phase, the positional trend is still up. Thus we reiterate our view to utilise this dip to gradually accumulate around the support zone from the medium-term perspective. However, considering the possibility of capped upside, traders should plan their trades according to the key levels.
The author is Vice-President (Technical Research) at Religare Broking
Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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