Gold witnessed a strong rally at the end of 2022 and continued to trade higher at the start of 2023. We are looking at gold breaking $2000 this year. In near term, we would see correction take place as it’s rare that gold takes off without a correction. Many of the participants who had missed out the rally are waiting for correction to take fresh long position. U.S. dollar is also finding support with the U.S. dollar index trading just below 102. Next week’s Federal Reserve monetary policy decision could provide some short-term bullish momentum for the dollar, which would weigh on gold.
However, the rally that we saw in USD in 2022 will not be repeated as now Fed is near to its end of tightening cycle. At the end of 2022, we might even see USD trade near 92. As long as the Federal Reserve raises rates no more than 25bps at the next two FOMC meetings, it would continue the bullish market sentiment that has been prevalent in gold since the major rally began at the beginning of November 2022.
Gold continues to outperform silver as gold/silver ratio is off its recent one-year lows and is currently trading back above 80 points. While gold has climbed nearly $300 in last three months, we would have expected silver to atleast climb till $28 but it has not even sustained above $24. Persistent inflation threat, ongoing volatility in the crypto market, geopolitical uncertainty, including the new debate in U.S. Congress over the debt ceiling and potential default, are all specific supportive factors for gold. So we would say opportunity is not in gold correction but in silver playing catch up.
Gold continues to trade near fresh all-time high in MCX and is clearly in overbought condition. Since 10th Nov, it has not touched its 20-day moving average and prices are far from all important moving average. Next week’s FOMC might be catalyst for some profit booking so we advice traders not to chase price at higher level but wait for correction till 56150 where 20-day moving average is. We also reiterate that this market is not for short so avoid taking any short positions as underlying trend is still bullish. Wait for some correction before taking long position around 56150 for an expected target of 57200 and stoploss of 55500.
(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.)