Near term support for gold at 1760, 1730 levels, upside capped at 1930, 1940 : Emkay Wealth Management
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The yellow metal has been trading in the range of US$ 1810-1875 for the past one month. Gold is trading in a narrow range due to two reasons - the persistent inflationary pressures, and the rising rates.
Inflation has become a key risk to growth for economies across the globe. Inflation has been hovering near multi-decade high in the US and UK. Back in India, the WPI data stood at a level highest seen since 1994, CPI inflation too has been above the 6% mark for 5 consecutive months. Historically, gold prices tend to gain during phases of high inflation but there is a reason that is restricting the gains for gold.
The stubborn and sticky inflation has forced central banks across the globe to hike rates aggressively and unwind the easy monetary policy to reverse the excess liquidity in the system. The hike in the US interest rates by the FOMC has been much faster and higher than expected. The Fed has turned more aggressive based on persistently high inflation numbers. This has rendered strength to the US Dollar, and the currency yields are rising too with hike in policy rates.
This underlines the commitment to contain inflation, and therefore, gold may not that well sought after as inflation may edge lower over the coming months. At the same time a strong dollar pulls down gold prices as the unit in which the buyer or seller is dealing is appreciating. In a scenario of dollar appreciation the prices of commodities which are quoted in dollars cannot move up due to the dollar strength.
Internationally, Gold prices have risen nearly 2.30% vs a drop 11% for the S&P 500 index and a fall of 2% for the Nifty 50 index. Clearly gold has outperformed the other asset class due to the uncertainty created by the geopolitical tensions between Russia-Ukraine, spike in crude prices. Gold is expected to trade in narrow range until clarity in the US on interest and other monetary policy measures. This is the prevailing situation, and hence the very narrow ranges in which the price is moving. The support levels for gold is at 1760 and 1730 levels, and the upside may be capped at 1930/40 levels in the near term..
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