By Dr. Renisha Chainani, Head- Research, Augmont – Gold for all
After nine consecutive days of losses, the gold market did not have a good start to the fourth quarter. This was the longest daily losing streak for gold in seven years. Gold prices have dropped more than 11% since their May highs above Rs 61800/ 10 gramme, as the Federal Reserve’s hawkish outlook has driven long-term bond yields to their highest level in 16 years.
- While gold was testing its March lows, the US bond market had a huge selloff in long maturities, pushing rates higher. Last week, the 30-year yield surpassed 5% for the first time since 2007. At the same time, the 10-year note yield increased to 4.8%, a record 16- year high.
- The Federal Reserve’s aggressive higher-for-longer monetary policy continues to weigh on gold prices, which remain near their lowest levels since March. As problems arise, the Fed has stopped raising interest rates and will begin cutting them in spring 2024.
Among all of these bearish triggers, there are a few positive triggers that could keep Gold and Silver prices from plunging any lower.
- The World Gold Council revealed that central banks purchased 77 tonnes of gold in August, a 38% rise over July purchases. The WGC said that central banks purchased 219 tonnes of gold in the last three months. Central bank demand continues to dominate the gold market, which could be a major reason why the precious metal maintains important long term support levels in the face of rising bond yields and sustained US dollar gains.
- Real disposable household income is declining, credit availability is dwindling, and many households have depleted their pandemic-era reserves.
- Furthermore, geopolitical tensions are rising as Israel declared war on Palestine’s Hamas on Saturday, pledging to avenge a deadly missile attack that killed 22 Israelis and which the militants claimed was their “first strike.” Israel has initiated air strikes against the Gaza Strip. This could bring safeheaven buying for Gold this week.
Technically, Gold prices are in an oversold and support zone of $1800-$1820 ( ~ Rs 56000), so can expect a 2-3% rebound in prices this week. Buy positions can be initiated in Gold in the range of Rs 56800-Rs 57000 for the target of Rs 57600 and Rs 58000 in the short-term. While Silver can be bought near Rs 68000 for the target of Rs 70000 and Rs 72000 in the short-term.
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