Geopolitical tensions, central banks’ buying to support gold
Net buying by central banks reached 145.5 tonnes in the first quarter of 2019.
In the international markets too prices corrected from the high of $1,348 per troy ounce to the low of $1,266.
The market witnessed sharp correction on US Federal Reserve ruling out further interest rate hikes in 2019 and jump in dollar index against other currencies.
The US economic data is also supporting dollar index, which keeps investor away from safe haven assets such as gold. But after the recent tweet of US President Donald Trump imposing additional tariff on $200 billion Chinese imports, gold prices got support at lower levels, as global financial markets saw a knee jerk reaction to the statement.
The US-China lawmakers are still regotating and are hopeful of reaching final conclusion by this weekend. We expect this new development and geopolitical tensions in the gulf to support gold in the coming sessions.
Latest report of World Gold Council is also supportive of the gold prices. According to the council, net buying by central banks reached 145.5 tonnes in the first quarter of 2019. That’s 68 per cent increase over last year. Also, it was the most gold central banks bought in the first quarter since 2013.
Russia and China led the buying, with the former snapping up 55.3 tonnes and latter purchasing 33 tonnes. Monthly purchases from the People’s Bank of China have averaged 11 tonnes over the past four months. Other notable buyers include Turkey (40 tonnes), Kazakhstan (11.2), Qatar (9.4) and India (8.4). We expect gold to show strength and test resistance zone of $1,317/Rs 32,300 in the coming weeks.
Gold’s technical chart
After falling from its January highs, gold took the support at its six-month low and is now expected to test 38 per cent and then 62 per cent Fibonacci retracement of the current fall.
We expect gold to test resistance zone of Rs 31,950 and then 32,300 in the coming weeks, further weakness is possible only if it closes and sustains below the Rs 31,180 level. In that case the precious metal will test Rs 30,900-30,680 zone, but chances are remote.
In the international market, gold may sustain above the $1,284 level and test $1,292 and then $1,317 in the coming weeks. Further weakness is expected if it closes and sustains below $1,266. In that case, gold will test $1,250-1,238 range, but chances are less.
Buy Gold Rs 31,450 | Stop Loss Rs 31,150 (Closing basis) | Target Rs 31,900-32,300.