By Dr. Renisha Chainani, Head-Research, Augmont – Gold for All.
Gold prices started the week very strong and touched a record high above 58800 while Silver was above Rs 72700 this week. Gold and Silver had been in a bull trend for the last three months, rising about 18-20%. But Gold prices are off $100 (Rs 2000/10 gm) and Silver by $2 (Rs 5000) from its recent highs in the last two days. The selling pressure was very severe, let’s find out what are the reasons:
• The US January jobs report showed an impressive 517,000 growth in Nonfarm payroll data,
• Even so, the high numbers indicate that inflation is still out of line with the Fed’s target. We believe the FOMC still wants to see some more wage growth slowing before the Committee is confident inflation is firmly headed to 2 per cent over the medium term, even though supply chain pressures are easing, commodity prices are cooling, and housing costs are moderating.
• The benchmark 10-year US Treasury bond yield recovered above 3.5%, weighing heavily on the precious metal pack. Dollar Index also recovered from its lows to trade above 102.85, following the strong NFP numbers.
• Technically, prices were very over-bought zone with RSI above 75. So a profit-booking was due in the price.
• Physical Demand in the market had vanished at higher levels above Rs 55000. People were waiting for prices to correct to make new buying
• All the positive fundamentals are already discounted in the prices, be it the Interest rate pause by FED and recession concerns.
So can we say that the top has been made in bullion prices and the bull trend is over??
I would say in the short-term, yes, top has been made and we can see profit-booking in prices in the next few days because of above aforesaid reasons. Having said that, the bull trend is still not over in the precious metal pack. A correction or retracement that would come would be a healthy one and dips should be used as buying opportunities for the long term.
Gold Prices can retrace back to $1840 (~Rs 55500) and $1800 (~Rs 54500) in this profit-booking. Silver prices have broken the range of $23 to $24.5 and now the downside target is around $21.5 (~Rs 65000). As the prices retrace to these levels, we will see buyers pumping in for bottom fishing, riding prices to Rs 62000 and Rs 83000 for Gold and Silver respectively in 2023.