14 Oct , 2022 By : Monika Singh
Gold market has been overwhelmed by the relentless strength of the dollar during September and start of October. Gold had breached $1700 this October and is currently trading at $1668. Yesterday with year-on-year US inflation coming higher than expected, we saw knee jerk reaction where gold witnessed sharp selloff. The reason was anticipation that Fed will continue to push rates higher to bring inflation under control. But gold along with equity assets reversed its course and ended in green. Many financial metrics are flashing red. Five-year charts show major currencies, including the Yen, Pound, Dollar, and Yuan are at extremes.
One of the reasons we might see the Dollar index retreat is despite a stronger-than-expected inflation number, the currency failed to go up and reversed its course meaning market is starting to discount every bad news. The CME’s probability indicator is forecasting that there is a 99.3% probability of a 75-basis point rate hike in November. The CME’s FedWatch tool is predicting that this will be followed by a 71.6% probability of another 75-basis point rate hike in December which would take Fed funds rates between 450 – 475 basis points by the end of the year.
This all bears bearish for gold and silver while bullish for US Dollar. However, the rally in USD has been overextended and both gold and silver are in oversold region in COMEX. So yesterday’s recovery could be some short covering but we will have to wait and see if the turnaround seen yesterday sustains for at least 2-3 trading session. In MCX, gold’s trend is neutral due to the weak Indian Rupee while in COMEX, the trend is bearish. In MCX, gold is near to its 20,50 and 200-day moving averages.
In Oct, gold had witnessed buy crossover from 20 and 50-day moving averages when gold rallied till 52120. However, despite pullback in prices from 52120 till 50850, the buy crossover still remains valid. RSI_14 is above 52 which is again a bullish sign. If we take recent swing low of 48950 and a recent high of 52120, 50% retracement comes at 50500. Yesterday’s low was at 50400 and gold rallied from that point. So clearly the buy trend will come under threat below 50400 and any long position can be exited below that. However buyers looking to make fresh entry can go long with a closing basis stoploss of 50400 and expected target of 51400.
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