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Upside for Gold seems quite limited to $1760 or $1810, strong support exists at $1700/1690: Emkay Wealth Management Ltd

Mumbai : The yellow metal is trading near the US$ 1750-1760 level, and it has been hovering around the 1700/1720  level for some time. It has broken the resistance levels at US$1730 and US$1760 and could be range bound in the coming weeks. The recent uptick is the result of the speculation that the rate hikes by the Fed may gradually moderate over time.  

The direction of gold prices has been inextricably intertwined with the direction of the US Dollar. The rate hikes by the Fed and the rise in market yields provided the background for the fall in gold prices. As the US Dollar index surged with higher interest rates a natural consequence of the same is that gold prices dropped. Even the conditions of persistent inflation could not help any revival in Gold. This indicates that prices of gold are getting delinking from the level of inflation, one phenomena that it was known for – a hedge against inflation.

As of now, a minor rise in gold prices is due to the softening of the US Dollar. The US Federal Reserve Chairman stated that the future rate action will be data dependent, also added that the US in not near any risk of slipping into a recession. The statement has given hopes that the Fed will slow down the rate hikes post the September meeting.

The gold price trajectory is linked to the future Fed action, movement of US Dollar. Aggressive tightening from the Fed alone could depress prices much further, and with expectations of inflation gradually moderating the room for any significant fall from the current levels may be ruled out. While the scope for upside seems quite limited to 1760 or 1810, strong support exists at 1700/1690, and this level is difficult to breach based on an analysis of 5 year price updates. If breached it could be the indication of a reversal of trend. Domestically, MCX gold has been trading in the range of Rs 50,258-52,122/10gm for the past few months. While it may continue to trade within these broad ranges, the direction of the Rupee would be crucial at this juncture. 

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