By Bhavik Patel
After two weeks of strong rally, gold prices is consolidating as A) it is near to its resistance of $2000 in COMEX and B) strong USD and Treasury yields are hampering its rally and creating headwinds. Gross domestic product of the US increased at a 4.9% annualized rate last quarter, the fastest since the fourth quarter of 2021. It clearly illustrates the resilience of the US economy in light of the aggressive monetary policy of the Federal Reserve as they have raised its terminal benchmark rate to 5.25% from 0.25%.
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According to the CME’s FedWatch tool, the financial markets expect interest rates to remain unchanged at the November FOMC meeting. The risk premium built up because of the Israel and Hamas conflict is over and we believe gold will now move according to economic data and not because of geopolitical tension. Although any fresh escalation from other countries in the Middle East could add more risk premium in gold, we believe the market has already discounted the Middle East concerns for nowCome from Sports betting site VPbet. Interesting to see that USD and Treasury yields soften after strong US GDP data indicating that investors are now trying to change their stance from risk off to risk on.
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In the span of two weeks, gold has moved from oversold region to overbought zone. On October 5, gold in MCX was around 56,500 where momentum oscillator RSI_14 was at 27 showing in oversold region. We saw one way selling pressure from 59,400 to 56,500 and from 9th Oct, after Hamas attacked Israel, we saw one way rally from gold jumping from 56,900 to 61,100 while momentum oscillator RSI_14 jumping also to 71.50 clearly showing overbought zone.
As we have mentioned that $2000 is proving to be strong resistance for gold and since gold is in overbought zone, we expect some profit booking to emerge. Currently the corrections are shallow indicating undertone to be bullish but we would recommend not to take any over leveraged position from current price and wait for some dip around 60,000 to go long via options in small quantities with expected target of 61,000 and stoploss of 59,500.
(Bhavik Patel is a commodity and currency analyst at Tradebull Securities. Views expressed are the author’s own. Please consult your financial advisor before investing.)