MCX gold outlook- MCX December gold may rise to Rs 53000 on weakness in US dollar; go long on every dip

MCX gold outlook: MCX December gold may rise to Rs 53000 on weakness in US dollar; go long on every dip

By Jigar Trivedi

Comex Gold appreciated to around $1,750 an ounce and is on track for another strong week as softer-than-expected US inflation data raised hopes for peak inflation and a slower pace of interest rates hikes from the Federal Reserve. The annual inflation rate in the US eased for a fourth straight month to 7.7% in October, rising at the slowest pace since January and coming in below expectations for a milder drop to 8%. Investors revised expectations for the terminal rate lower, while money markets are currently priced for a more moderate 50 basis point Fed rate hike in December after it delivered four consecutive 75 basis point increases.

Comex Gold is up about 4.6% on Friday after Thursday’s rally brought the metal to its strongest levels in over two months. MCX Gold December has gained by 3% to levels above Rs. 52,355 per 10 grams.

Greenback tanks

The dollar index dropped below 108 and on track to end the week more than 2.5% lower as a cooler-than-expected US CPI report raised hopes for peak inflation and a slower pace of interest rates hikes from the Federal Reserve. Money markets are currently priced for a more moderate 50 basis point Fed rate hike in December after it delivered four consecutive 75 basis point increases. The dollar held its decline against other major currencies such as the euro, sterling and antipodean currencies, while it continued to slide against most Asian currencies. The dollar was on pace for its worst one-day decline in more than 13 years on Thursday after data showed a slowdown in price increases.

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The dollar has been the king this year. The U.S. Dollar Index, which measures the performance of the U.S. currency against a basket of others, was up 16% from the beginning of the year through the start of November. That performance put the dollar on more even ground with the euro, which achieved parity with the greenback at least twice this year. The Japanese yen, in September, fell to its lowest levels versus the dollar in 24 years.

But the currency winds shifted Thursday. The Dollar Index fell 2.2%, putting it on pace for its worst one-day decline since March 2009. The main culprit was inflation data, which showed that prices of things like airfares, used cars, and clothes were falling, laying the foundation for the Federal Reserve to slow its pace of interest-rate increases.

According to the World Gold Council’s latest report, India’s gold demand has reached pre-pandemic levels and has witnessed an annual growth of 14% during the July-September quarter at 191.7 tonnes mainly driven by strong consumer interest. The report also said that the rural demand was impacted by seasonal effects (monsoons) and inflation and on the other hand, Indian bar and coin demand also saw a 6% year-over-year improvement to 45.4 tonnes as retail investors responded to gold price drop and weaker equity markets, and festivities around Ganpati and Puja festivals after two years of COVID-19, saw a huge uplift in consumer sentiment.

Outlook

From an economic data point of view the week will be an important one. India will release CPI/Inflation on Monday. US will publish producer price index and Empire state manufacturing on Tuesday, on Wednesday most important retail sales and industrial production will be released, Thursday US will publish housing starts and finally on Friday existing home sales data for October. Hence we may see the dollar reacting to each and every data. For the greenback 106 is a strong support. Going ahead MCX December Gold may appreciate to Rs. 53,000 per 10 gram owing to the dollar weakness. Comex gold is all set to rise further to the next resistance of $1800 an ounce in coming sessions. We recommend going long on every dip.

(Jigar Trivedi, Senior Research Analyst – Currencies & Commodities, Reliance Securities. Views expressed are the author’s own.)