Over view and Outlook

Yellow metal have shown steady rise since last four months as its prices have scaled higher nearly 16 percent in MCX from nearly 50000 in Oct 2022 to above 58000 in January 2023 and from $1615 to $1960 in COMEX that is rise of more than 20 per cent . During that period the dollar index have fallen nearly 13 per cent from 114 to below 101. But since the beginning of February dollar index has bounced back sharply thereby pressurizing the yellow metal.

Gold prices registered its biggest monthly decline in February since June 2021 as a stronger dollar and fears that the U.S. Federal Reserve would keep raising interest rates weighed on the non-yielding asset’s appeal. On Comex, gold has fallen more than 5% in February month after strong economic data boosted expectations of more rate hikes. The dollar posted its first monthly gain in five, making gold more expensive for overseas buyers. Markets went from expecting a rate cut at the end of this year to a high possibility of higher for- longer rates as macro data surprised on the upside. Inflation is proving challenging to bring down, adding to fears that the Fed will be much more aggressive than previously thought. The recent series of strong United States economic data and hawkish Federal Reserve (Fed) commentary have heightened expectations for three rate hikes this year – 25 basis points (bps) each in the March, May and June meetings.

In medium term yellow metal on domestic bourses is expected to take support near 53200-52200 range while facing resistance near 58000.

Factors impacting Gold

Gold demand patterns

Investment demand for gold increased by 10% to 1,107 tonnes, while holdings of gold ETFs (exchange-traded funds) saw smaller outflows in 2022 than in the previous year. Jewellery consumption dropped 3% in 2022 to 2,086 tons, with much of the weakness concentrated in the fourth quarter as gold prices rallied. Central banks show continued demand for gold in 2023, as per a recent report from the World Gold Council (WGC), which noted that, the world’s central banks accumulated 31 tons of the precious metal in January. Turkey was the largest gold buyer, adding 23 tonnes to its central bank’s stash, while the People’s Bank of China also purchased 15 tonnes of gold.

US interest rate meeting in March

The next Federal Open Market Committee (FOMC) meeting is scheduled to take place in March. The FOMC will be meeting on March 21 and 22 to decide on the next course of action on a rate hike by the Federal Reserve. March 22 Fed rate hike decision date is also important as the FOMC will also release the Summary of Economic Projections. The economic projections pave the way for understanding the Federal Reserve’s so-called dot plot, which the central bank uses to signal its outlook for the path of interest rates, based on median projections. Earlier, the US Fed climbed down from four consecutive rate hikes of 75bps to a 50 basis point increase in December, following up with a 0.25% hike in January. The markets expect the Fed to announce a rate hike of equal magnitude by raising rates by 25 basis points on March 22.

Movement of US dollar index

Dollar index have negative correlation with the yellow metal as dollar’s bounce in February had weighed on gold. A stronger dollar can be a weight on commodities priced in the unit, making them more expensive to users of other currencies. Dollar index can bounce towards 107-108 there by keeping the yellow metal under pressure.

Inflation concerns and gold

If inflation continues to rise, then gold might fall further. Hopes of a swift further decline in the inflation rate have received a noticeable damper at the beginning of 2023. U.S. Treasury Secretary Janet Yellen recently told that inflation jumped unexpectedly in January signals that the fight against inflation “is not a straight line” and more work is needed. Fed chairman Powell’s biggest challenge will be to keep inflation under control while avoiding a severe economic downturn in his rate hike spree. Chairman Powell has been vocal about the fact that although inflation has moderated recently, it remains too high. Fed officials are determined to bring inflation to under 2% over time.

Daily Chart of Gold (COMEX)

Analysis

COMEX Gold prices have witnessed sharp correction since the beginning February as it faced resistance near $1950-1960 range. The next support for the prices is near $1785-1735 zone and $1630 in medium term. Bounce back in dollar index has resulted in correction in yellow metal.

Daily Chart of Gold  (MCX)

Analysis

MCX Gold prices have shown steady decline since the beginning of the year as it faced key resistance near 58000-58500 range .Meanwhile 53200-52200 is key support zone. Any bounce back in dollar index towards 106-107 can further pressurize the yellow metal.

Disclosure

Globe Capital Market Limited (“GCML”) is a Stock Broker registered with BSE, NSE, USE and MSEI in all the major segments viz. Capital, F & O and CDS segments. GCML is also a Depository Participant and registered with both the Depositories viz. CDSL and NSDL. Further, GCML is a SEBI registered Portfolio Manager. GCML includes subsidiaries, group and associate companies, promoters, directors, employees and affiliates.

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