Gold price rebounds from 16-month low. Should you buy, sell or hold?

According to commodity market experts, spot gold price is trading in the range of $1680 to $1750 per ounce range whereas MCX gold rates are trading in the range of ₹49,500 to ₹51,500 per 10 gm. They said that $1680 has been working as strong support for international gold price for last two years and till the yellow metal price is sustaining above these levels, one should maintain ‘buy on dips’ strategy. They went on to add that downward trend can be expected only when this pivotal support is breached.

Speaking on the reasons for bumpy trade pattern in gold prices, Sugandha Sachdeva, Vice President — Commodity & Currency Research at Religare Broking Ltd said, “Gold prices plummeted to a 16-month low during the week, amid rapid interest rate hikes by the key central banks in their fight against widespread inflationary pressures, which suppressed the investment appeal of the metal. However, prices managed to stage an impressive recovery from the pivotal support of the $1680 per ounce mark amid renewed concerns about the global growth outlook and widespread inflationary pressures.”

Dollar index softens

Sugandha Sachdeva went on to add that softening of the dollar index enticed buying interest in gold at lower levels. On the data front, the US initial jobless claims surged for the third week in a row while the Philly Fed manufacturing index contracted for the second straight month, fueling economic growth concerns.US preliminary data for July reflected mixed activity in the US manufacturing and service sectors.

The Religare analyst said that the key highlight of the week was the ECB monetary policy meeting, wherein the European Central Bank hiked interest rates by 50 bps crossing market expectations to combat elevated inflation. The ECB president even cautioned about persistent inflationary risks as the war in Ukraine still drags on and energy prices are holding firm. On the other hand, the Bank of Japan on expected lines maintained an accommodative stance, while raising inflation forecasts and highlighting risks to the economic outlook. However, as markets are closely eyeing Fed’s policy meeting next week, bets of a 100 bps rate hike by the US Fed have eased which has caused the greenback to witness losses for the first time in four weeks, while underpinning gold prices. Besides, the energy crisis eased in Europe as Russia resumed flows of gas to the region through a key pipeline, which lifted market sentiment.

Pivotal levels for gold prices

Asked about important levels in regard to gold prices Anuj Gupta, Vice President — Research at IIFL Securities said, “Spot gold price is having strong support of $1680 to $1675 per ounce levels whereas immediate hurdle for the yellow metal in spot market is placed around $1750 to 1760 levels. Bullish or bearish trend in the precious metal can be assumed on breakage of either side of the range. On MCX, gold price is currently trading in the range of ₹49,500 to ₹51,500. Any dip in the gold price should be seen as buying opportunity till these pivotal lower levels are intact.”

The IIFL Securities expert said that one should avoid taking bulk position because gold prices are expected to remain highly volatile ahead of US Fed meeting scheduled next week. He said that market is expecting further rate hike announcement in this meeting.

Gold price outlook for near term

Speaking on gold price outlook, Sugandha Sachdeva of Religare Broking said, “The path ahead for gold is slightly bumpy, but despite the steep sell-off witnessed for the last five consecutive weeks, gold prices have still managed to find a strong cushion at the key level of $1680 per ounce, which has been protecting gold for almost two years. As long as this holds, we expect recovery trade to get underway in gold, where initial support can be seen at ₹49,500 per 10 gm mark on MCX, while the key support rests at ₹48,800 per 10 gm. Only if prices penetrate this pivotal support convincingly, we are likely to see an acceleration of downwards momentum. That said, we envisage gold prices to entice buying interest at lower levels and witness a retreat towards ₹51,200 to ₹51,600 per 10 gm zone in the coming days.”

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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