Gold looks vulnerable in short term, wait for correction around 58800; All eyes on US FOMC meeting

Gold looks vulnerable in short term, wait for correction around 58800; All eyes on US FOMC meeting

By Bhavik Patel

Gold market has been trading in the range of 59500-60400 for the past 8 trading sessions. The biggest catalyst for the gold market would be the FOMC meeting on 3rd May. Today’s PCE will also be very important as it is Fed’s preferred indicator for inflation. Yesterday US GDP growth came lower than expected but the closely watched PCE price index of the GDP data came in hot at up 4.2%; it was expected to be up 3.7%. This prompted US monetary hawks to reiterate that Fed will keep up the rates to choke off inflation.

The recent rally for gold was started by the banking crisis and the hope of a pause in rate hikes from the Fed but the momentum will continue on account of de-dollarization. With more and more countries trading in their own currency, investors are realizing that dollar devaluation may not be temporary and so there are hedging their US dollar with gold. One of the examples is the yuan which became the most-used currency in China’s cross-border payments in March, surpassing the U.S. dollar for the first time.

So in essence, the decline of the dollar is the primary driver for gold. During Oct-Nov 22 gold rose from $1650 to $2000 on the back of signs of a pause in the US Fed which drove gold up but ETF inflows were still down meaning investors were not buying gold. Central banks were buying but investors were missing and it took the banking crisis from the US which drove investors to gold and help turn ETF inflows in positive for the first time in 10 months. The rising expectations of a recession could help fuel gold demand in the medium term.

In the short term, gold is looking a little vulnerable at the top due to the recent resurgence in the Dollar index. Next week’s FOMC meet will be the biggest trigger and any position should be taken only after the event as near the run-up of the event, we may see volatility increasing. Those who are waiting to take a long position should wait for the price to correct around 58800. Avoid taking a fresh long position at the current juncture while those investors who have held long positions can book profit and wait for correction around 58800 for taking a fresh 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.)