Bullion likely to retrace before a sharp runup rally

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By Dr. Renisha Chainani, Head Research, Augmont – Gold for All

Bullion prices are seeing some retracement, as the prices had run up too much and too fast. Bullion rally was driven by the low US CPI print, markets traded cautiously this week. US October retail sales growth surprised to the upside, signalling that the low inflation print did not necessarily reflect easing demand, as FED would have hoped for.

Following Russia’s invasion of Ukraine, geopolitics was on the agenda of the G20 summit. Despite the previous years’ tensions, Joe Biden and Xi Jinping met for the first-time face to face after Biden became president, and the leaders set a more constructive tone, emphasising that neither party wanted to engage a new cold war and that communications lines will be reopened. Having said that, we believe that the Taiwan problem, as well as new US tech limitations, will keep tensions high.

While the Democratic Party performed better than predicted in the US midterm elections, retaining control of the Senate, Republicans narrowly retained control of the House this week, assuring a divided Congress. The conclusion is a positive (albeit largely predicted) outcome for markets, since the split Congress is less likely to enact potentially inflationary deficit spending measures. Markets will now focus on how Congress will raise the US debt ceiling, which is set to be reached early next year.

The attention returns to the economic growth outlook next week, with the release of November Flash PMIs. Gold is projected to trade flat to positive, with resistance levels at $1800 and $1820 and support of $1710 (~Rs 51500). The precious metal’s ability to hold new important support levels may signify a longer-term structural shift. The FED has switched from being too late (and then too fast with super-sized rate hikes) to now not being able to boost enough to bring inflation down sustainably.

Silver is moving in sync with gold, bottoming out at around $18. Silver, on the other hand, increased by more than 23 percent and traded just above $22 (~Rs 62500). After breaking the trend line, silver is lying on a support and the EMA200 at $20.5 (~Rs 60000), providing a long-term buying opportunity. If silver can break through the current support level, it might reach $24(~Rs 68000) or higher. However, before establishing a long position, the signal should be validated by a significant pin bar or an engulfing pattern. Overall view is buying on dips for precious metals pack for next few days.

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