Nov 3, 2023
Even though Fed rate hikes may continue, gold still good buy for medium term; go long around 56500 level
By Bhavik Patel
Hope for a pause in interest rates from the Fed proved to be short lived. It has become clear that the Federal Reserve will make good on its commitment to continue rate hikes and sustain those higher levels throughout this entire year. Market continued to act under the belief that since inflation is easing, the Fed might take its step off the gas and investors continued to base their decisions on the belief that the Federal Reserve would not make good on this commitment. However after the solid jobs data last Friday, there are less chances of major recession and less incentive for Fed to back down.
Another reason why we are bullish on gold, is investors looking to protect their purchasing power and hedge against growing economic uncertainty. While consumer prices have fallen from their highs seen last summer, central bank tightening has reduced the global real money supply, liquidity in the global economy. So far this year, markets have largely dismissed the idea of a recession as the labor market remains healthy.
The US Central Bank can’t sustain an interest rate above 5% as they also have to service their debt at higher interest. Current gold price is a good buy for the medium term and if we look at the long term, it is still cheap given the current economic conditions. Gold has closed below its 20-day moving average for the first time since 8th Nov 2022. The rally which was overstretched now has been corrected. RSI_14 is around 51 which suggests prices have come back to its mean average. We believe the fall might continue as in COMEX, gold has breached its support of $1860 and next support comes at $1832. Similarly in MCX, the support comes at 56,500 and below that at 55,800. So wait for gold to make its base around that level before initiating any long position.
(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.)
More Details