Gold’s near term outlook bearish but prices may top $1,320 by June
Gold’s intermediate trend is negative, as gold is trading below its 200-day moving average.
Commodity Summary MCX
Results season has started and once again investors are feeling optimist over a turnaround and are pouring their funds into equities. This has put gold on the back foot.
Gold’s intermediate trend is negative, as gold is trading below its 200-day moving average. The break down from 50-day moving average has accelerated selling, as seen in the chart 1. Gold is at an important level, and if it manages to close below 200-day moving average on a weekly basis, then we may see bears taking control.
Let us look at some of the factors, which influence the price of bullion. One of the most important variables, which determines gold’s long-term path of least resistance is the US interest rate trend. Declining trend in 10-year US bond will benefit gold since the metal had to compete with higher yields.
US interest rate is not expected to increase, but we may see a rate cut next year, which will cap upside in bond yields, ultimately benefitting gold in the long run.
Even though gold is languishing because of a strong dollar, other dollar sensitive commodities have performed of late. Industrial metals have outperformed in the last few months despite strong dollar and concerns over global economic outlook.
Last few days have been challenging for gold, as it is facing strong headwinds from strong dollar and positive economic news.
Why we feel gold may not correct heavily. Here’s why. Even though China’s GDP came in at 6.4 percent, we expect that slowdown in Europe will continue.
German Manufacturing PMI came weaker than expected and here we are seeing where gold in Comex and Dollar Index both are gaining.
Usually when dollar index gains, we see sell off in precious metals but here EUR-USD saw sell off because of weak data and gold also got a boost as the weak economic outlook is positive for gold.
In the short term, we may see optimism in risky assets such as equities on back of reviving earnings, but we don’t think the optimism will sustain looking at other economic indicators.
Gold strength in spite of strong dollar indicates support at lower levels and once a fear of recession again rises like it did two months back, we may again see gold prices rising.