By Bhavik Patel
Gold is just a commodity with relatively low volatility compared to other assets. Gold is stuck in the $1805-$1860 range where bulls and bears play tug of war. We don’t expect any recovery until confidence returns to the market. Right now, the markets are shaking with fears of a recession. There is a shift in the market as inflation fears give way to recession panic, which is helping the US dollar and gold. Investors are switching from risky assets like stocks and cryptocurrencies to safe-haven assets like gold and the US dollar. Gold’s outlook would be bearish if the Fed remained too hawkish.
One of the reasons for gold’s lack of rally is that it seems traders are focusing more on the downside of less demand from a possible US and/or global economic downturn, and less on the bullish aspect of inflation being historically bullish for durable assets. like gold.
Another phenomenon we have seen is the overall selling off of all commodities due to rising rates and fears of recession. Be it energy packs like raw and natural gas, base metal packs, stocks, cryptocurrencies and even agricultural commodities. All are under selling pressure except gold and the US dollar. Federal Reserve Chairman Powell’s comments before a Senate panel on Wednesday did not allay fears that the U.S. economy could slide into recession in the coming months. Even he acknowledges that it would be difficult to stage a soft landing for the US economy, which means we won’t see any deep correction in gold. We have already seen buyers activate around $1,800 levels, which would be a good level for any new long positions. Now that the US Fed meeting is over, the next trigger for the market would be inflationary data.
Gold continues to consolidate at current levels in MCX. The volatility index has gone down and it looks like gold is establishing itself. The 20- and 50-day moving average has been close to price since May 19, indicating how narrow gold’s move has been since the past month.
RSI_14 is also neutral at 46, indicating that bulls and bears are on equal footing. Important support for gold lies at the 50000 and 49500 levels. Resistance lies at the 51800-52000 level. Regarding range bound trading, the trade set up for investors should be to buy around the 50000 level and take profit around 51800 and all existing long positions should be exited around 51500 as the sellers are heavy-handed around this area. A new long position can be taken above the breakout of 52,000 for targets of 53,000 and a stoploss of 51,400.
(Bhavik Patel is a Commodities and Currency Analyst at Tradebulls Securities, views expressed are those of the author.)