Gold may remain neutral to bearish this week; watch out these factors, check trading range

By Bhavik Patel

Gold prices tumbled below $1900 last week before managing to stabilize around $1930. Gold prices are steady after the first Fed rate hike since 2018. The March meeting was hawkish but did not derail the positive sentiment towards gold. Markets have renewed long term interest for gold after current geopolitical risks have led to concerns that inflation could surge even higher. We have not yet seen a massive spike in food prices translate in and once it starts showing, then we may see gold prices climb higher.

The first major resistance comes in at around $1,980 while support comes at $1875. It will be a light data week, with markets watching Wednesday’s new home sales and Thursday’s durable goods orders, jobless claims, and manufacturing PMI. Rising inflation remains the biggest reason why investors should hold some gold and at least 10% of precious metals should be in one’s portfolio. The US Federal Reserve has unveiled a clear monetary policy plan. Historically we have noted that gold traditionally performs poorly ahead of a new tightening cycle but rallies higher once the path has been laid out. Prices have managed to hold support above $1,900 even as the U.S. central bank looks to raise interest rates seven times this year and could start to reduce its balance sheet at the next meeting. Despite last week’s drop of around 3% in gold, sentiment continues to remain strong. Now what happens to gold in this week is largely dependent on movement in the Ukraine war as there aren’t any major data releases. Gold’s war premium will continue to slip away, but the longer-term trend from September remains up on monetary factors.

In MCX, after a huge ‘bearish engulfing’ candlestick pattern, prices continue to chip away on the lower side with immediate support around 51000 while resistance around 51800. Premium has been eroded and prices are touching 20 day moving average indicating that froth has been washed away. On a daily scale, it seems prices may move lower till 51000-50500 and there we may see some more stability. Indian rupee has also strengthened after fall in crude oil prices which is helping MCX gold prices come lower. This week we expect a range of gold between 50500-52500 and the view remains neutral to bearish. Area between 50700-50500 is a good zone for taking fresh long positions.

What should investors do?

Investors should wait for the area between 50700-50500 to trade for taking fresh long positions. Keep positions light as we don’t expect any major movement this week owing to light data and no progress in Ukraine-Russia conflict.

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