Gold forms bearish engulfing chart pattern, wait for correction til Rs 51000; long-term view remains bullish

By Bhavik Patel

The froth that was built up in gold came undone as geopolitical concerns between Russia and Ukraine has been not escalating. The precious metal was reacting to a rebound in risk-on sentiment on Wall Street, where WTI crude crashed from $127 to $110 after Ukraine president said he is no longer willing to join NATO. Gold, like other commodities, will likely remain a very volatile trade as markets continue to digest developments in Ukraine and potential new supply shocks. Gold prices also saw intraday correction of around $100 falling from $2060 to $1977. This was expected as gold rally was on back of risk built up and whenever situation will improve, prices were expected to retrace back.

An important support level to watch is the $1,922 an ounce while $2060 is next hurdle for Gold. Aside from the geopolitical angle, there is one critical macro release that markets are carefully watching and that’s Thursday’s CPI number out of the U.S. Numbers are expected to come higher due to rise in crude oil prices and agriculture prices. With stagflation concerns, despite higher inflation, central banks will not be aggressive in hiking rates which will fare better for gold.

In short term, we might see more pullback as the risk of geopolitical concern was priced in but now we feel gold’s fundamental price should be between $1950 to $2100 looking at high inflation. Gold has moved on two major issues, the war in Ukraine and spiraling inflation. Higher inflation levels would be highly supportive of gold and make it likely that after this correction, it will return to rally mode and will test levels of $2100. For next week, one thing is certain and that is we will see high volatile price action on account of US FOMC and rapidly changing situation between Russia and Ukraine.

Gold has made ‘Bearish Engulfing’ chart pattern on daily scale at the top which is sign of reversal. We believe the downside sentiment should continue till end of this week and till the start of the next week. Gold needs to consolidate and pullback more if it needs to make base for further up move. 51300 is where its 20 day moving average is and we expect prices to come test that levels. Wait for correction till 51000 before taking any long positions and even though in short term, trend has changed, view for long term remains intact which is bullish.

(Bhavik Patel is a commodity and currency analyst at Tradebulls Securities. Views expressed are the author’s own. Please consult your financial advisor before investing.)