Through Bhavik Patel
Inflation data in the United States sparked a gold-buying frenzy as the precious metal jumped nearly $ 40. September inflation figures showed price pressures were accelerating to 5.4% per year, slightly more than the market expected. Inflation is back to its highest level in 13 years and with the stock market in an overbought zone, we could see money shifting from risky assets to safe haven assets like gold. We have seen Treasury yields flatten, which is positive for gold. Now, investors are anticipating a rate hike sooner than expected. More persistent inflation could mean a more aggressive Federal Reserve on tightening.
Gold is facing massive resistance at $ 1800 and if it breaks above that level, we could see a jump of $ 20 immediately as there would be a hedge of the short positions. There is now a more than 90% chance that the Fed will hike rates by September 2022. Even the IMF has criticized the US Fed for saying inflation is transient. The International Monetary Fund has warned that the Fed and its global peers should prepare contingency plans if inflation proves to be persistent. This would mean raising interest rates earlier than expected to control price gains.
We believe gold will bottom out when the US Fed begins to scale back its asset purchase program. Anticipation of the reduction in assets triggered inflows in US dollars and Treasuries, which explains the underperformance of gold. Now the US Fed has stepped in as there is a risk of stagflation with the job market still not full as inflation soars. This will be beneficial for the price of gold.
Money should be better, but it isn’t. If we have a weak economy coupled with a willingness to need and use more money, you are going to see base metal mines shutting down that are producing silver as a by-product, which should drive up prices. price. There is not a large supply of silver above ground, so when a tightening of supply and demand occurs on silver, it can affect the price very dramatically and in a very short period of time.
Gold has broken the trendline and resistance at 47400 and now looks bullish. It also managed to close above 200 DMA for the first time since July 15. RSI_14 is around 64 so there is room for further hike. For next week we are forecasting higher prices up to 48500 and any decline should be an opportunity to go long with a 46800 stoploss. Silver is at the resistance level we can see on the chart. daily. It must cross 63500 for bullish momentum. We are bullish on both gold and silver for the next week and any decline is a good opportunity to go long.
(Bhavik Patel, Senior Technical Research Analyst, Tradebulls Securities. The views expressed are those of the author.)