By Dr. Renisha Chainani, Head- Research, Augmont – Gold for all
For global central banks, last week was a very busy week. It was a 25 basis point rate cut by the European Central Bank. Both the Bank of Canada and the Swiss National Bank chose to implement more aggressive easing in the meantime, cutting their rates by 50 basis points. Conversely, Brazil’s central bank made an extremely hawkish announcement, raising the Selic rate by 100 basis points and indicating that the next two policy meetings will see rises of the same magnitude. This week, the BoE is expected to hold the interest rates, the FED is expected to lower rates, and the BOJ must make a difficult decision either to raise rates or wait.
The US economy’s excellent performance supports the idea that Fed officials shouldn’t cut interest rates right away, as Fed Chair Powell himself has stated. Market participants became increasingly certain that the Fed will cut rates next week, nearly completely pencilling in a quarter-point cut, even though last week’s data indicated that US inflation was a little bit stronger than in October.
US Inflation Trend
A 25 bps drop by itself is unlikely to cause much market turbulence in light of all of that. Investors should pay closer attention to signs about the likelihood of a January pause and the number of rate cuts that policymakers are considering in 2025. However, the likelihood that policymakers will abstain in January has increased to over 80%.
The inflation outlook is made more complex by the election of Donald Trump as the next president of the United States. His suggested measures, which include business tax cuts, immigration restrictions, and import duties, are thought to have the potential to cause inflation. If put into effect, these policies might raise expenses throughout the economy and put the Fed’s goal of gradual rate drops in jeopardy.
The US Dollar Index, which is once again in the crucial region at the 107 handle, is the main focus this week. I believe that demand will be supported and that gold prices have found a floor around $2500 (~Rs 73000) for the upcoming months due to the expectation of lower interest rates, the continued elevated geopolitical risk, and the uncertainty surrounding the Trump administration’s implementation of protectionism policies.
Domestic Gold Daily Chart
Gold has been taking support at the uptrend line for the past month. If the same trend is to be followed, Gold will rebound from current levels of Rs 77100 towards Rs 79000 again. If prices sustain below Rs 77100, the next target is Rs 75000.
International Silver Daily Chart
Similarly, Silver has been consolidating in the range of Rs $32.30 (~Rs 95000) and $29.70 (~Rs 88000) over the last three months. Buy on dips around the support levels and selling on rallies around the resistance level should be the strategy used.
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