Precious metals might be going through a consolidation. But there are several factors that can trigger an upside movement, while very limited factors that can pull down further. Gold in the international market can move up to $1,480 per ounce and Rs 32,500 per 10 gm in the Indian market. Silver too might follow the price trend.
Gold prices were trading around $1,240 per ounce during the middle of December. This was the time when the US Federal Reserve raised the interest rates for the third time. The gold market had already factored in the third rate hike. Further, expectations were building up in the market that the pace of rate hike need not be as a fast in 2018 as it has been. After the rate hike, gold rallied towards $1,360 per ounce going up by $100 an ounce.
A rally of $100 led to profit booking and gold prices softened to $1,310 per ounce. Further, the dollar index had made some recovery and the US treasury yields too were moving up. Moreover, physical buying of gold was slow, especially in Asian markets, said Himanshu Gupta, chief market strategist, Karvy Comtrade.
However, in the first week of February when the equity market saw large-scale sell-off with the spike in US bond yields, gold gained $10 in a day on safe haven buying. Gold has been moving in a tight range of $1,320 per ounce and $1,360 per ounce in the past few sessions.
“There is a tussle between positive and negative factors in the gold market. However, the positive factors seem to outweigh the negative factors at this point of time,” said Gupta.
Rising inflation in the US may force the Federal Reserve to hike interest rates and higher interest rate scenario will be negative for gold. But inflation will bring down the real interest rates despite rate hike. Gold is also an inflation-hedge and hence spurt in inflation can drive investors to gold.
“At this point of time, investors are not confident of either selling or buying gold. So the market will remain within a tight range of $1,320 per ounce and $1,360 per ounce. But once it breaks the current resistance levels, gold prices may see further upside,” said Gupta.
Any volatility in the equity market will be beneficial for gold. Geo-political concerns too may drive safe haven interest in the yellow metal. Further, any weakness in dollar index can be good for gold. Any disappointing economic data from the US too will see investors flocking towards gold.
“Gold prices have already factored in two-three interest rate hikes and hence risk of downside in face of rate hike is limited. Attempts by investors to diversify portfolio in the event of weakness in the equity market also will support gold prices. Chances of gold moving down from the current range are lesser, while chances for upside movement are higher,” he added.
If prices break, $1,360 per ounce, gold can move to $1,380 per ounce and $1,400 per ounce in the short term and eventually move towards $1,450 per ounce and $1,480 per ounce.
In the Indian market this could take gold to Rs 31,200 per 10 gm and to Rs 32,500 per 10 gm.
“After the PNB fraud, the rupee has weakened due to stronger demand for dollar. The Indian rupee’s weakness has led to out-performance of gold in the domestic market. It is currently trading around Rs 30,500 per 10 gm,” said Gupta.
Silver too has been following a similar price pattern in the past few months. As silver has shown signs of bottoming out, the white metal is likely to outperform in the coming weeks compared with gold. In the immediate short term, silver can move up to $17.5 an ounce, if gold breaks the current range. Further, $18.5 and $19 are some of the crucial levels for silver.