Gold may hold its sheen
While most factors point towards a positive outlook for gold from a long-term perspective, there are certain downside risks too emanating from the US Federal Reserves’ tightening path and the strength in the dollar index. They can cap gains in the precious metal
As the festive season is in full swing, the yellow metal is flaunting its shine across the board. For the year, gold has outperformed riskier assets, clocking gains of around 9 per cent in the domestic market.
While the yellow metal gleamed in the Indian markets, its shine faded in the international markets with almost 5.5 per cent negative returns. This divergence is because of the sharp depreciation in the rupee, which increased prices on the domestic markets.
Physical demand for gold has remained tepid in the first half of the year. But the World Gold Council (WGC) expects the total demand to touch lower end of the 700-800 tonnes range this year against 771.20 tonnes in 2017.
Gold has been the favourite asset for the central banks to acquire this year, due to uncertainty among major economies, particularly after the outbreak of US-China tariff skirmishes.
They are buying gold at the fastest pace in the last six years. During January-September, the central banks added 264 tonnes of gold in their reserves.
Going forward, gold outlook in the international market will be influenced by the Fed’s monetary policy, trend of the dollar, intensity of trade war, rising US debt and other geopolitical factors. Nevertheless, the rupee’s trajectory is the major factor that will set the tone for gold in the Indian market.
Recommendation: Within the outlay of stated fundamentals that portray the idea of gold as an ideal investment from a medium to long-term perspective, technical charts are showing positive sentiments for the metal, though in the near-term prices look stretched and can witness profit booking.
Near-term strategy: As gold prices have visible hurdle in near-term at Rs 32,500 per 10 gm, a healthy correction looks likely from the recent highs, providing an opportunity for short sell trades for a near-term perspective. Hence, we recommend selling gold near Rs 32,000-32,050 per 10 gm ($1,245 per oz) for downside projection of Rs 31,400 per 10 gm ($1,210 per oz) initially and next at Rs 30,90030,950 per 10 gm ($1,180 per oz), while maintaining stops at Rs 32,500 per 10 gm ($1,270 per oz), which is a crucial resistance level. Long-term strategy: As the longerterm trend looks positive, we recommend accumulating gold on lower levels near Rs 30,900-30,950 per 10 gm ($1,180 per oz) at MCX, while considering Rs 30,450 per 10 gm (200-day EMA) or $1,160 per oz as a level of caution. On the higher side, prices can target Rs 32,500 per 10 gm ($1,270 per oz) as near-term crucial upside and once breached convincingly, Rs 33,200 per 10 gm ($1,295 per oz) and Rs 34,000 per 10 gm ($1,325 per oz) look likely on the cards from a medium to long-term standpoint.
Source: Religare Broking