By Mrs. Renisha Chainani, Head – Research, Augmont Gold For All
With the market sentiment remaining cautious on Friday, gold rose over 2% on a weekly basis. To extend its rally, gold must get over $1900 psychological level and begin to use that level as support. At domestic levels, Rs 50000 is the psychological barrier, that prices need to sustain above to touch Rs 52000.
Gold began the week on a strong note as investors sought safety from rising worries of a Russian invasion. Although reports that Russian forces were returning to bases caused the yellow metal to lose traction as a safe haven on Tuesday, it managed to regain traction in the second half of the week and rise beyond $1900 for the first time since June 2021. With the market sentiment remaining cautious on Friday, gold rose over 2% on a weekly basis.
Jake Sullivan, national security adviser to US President Joe Biden, said CNN over the weekend that Russia might invade Ukraine before February 20. Markets became risk-averse at the start of the week as a result of this report, and gold saw big daily gains on Monday. However, markets breathed a sigh of relief on Tuesday after Russian President Vladimir Putin announced a decision to remove some soldiers.
On Wednesday, the market mood deteriorated once more as US Vice President Biden reiterated that a Russian strike on Ukraine was still a possibility. Furthermore, so far, we have not seen any evidence of de-escalation on the ground, nor have we seen any signs of reduced Russian military posture on Ukraine’s borders.
Meanwhile, the US Census Bureau reported that retail sales in the US climbed by 3.8 percent on a monthly basis in January. This reading outperformed the market’s expectation of 2% by a substantial margin, but market players generally ignored it. Later that day, the minutes of the US Federal Reserve’s January policy meeting revealed that most policymakers preferred a higher rate of increase in the Federal Funds rate target than in the post-2015 timeframe.
Markets remained risk-averse on Thursday, as investors tried to figure out whether or not Ukraine and Russia will engage in a military battle. The United States’ Secretary of State, Anthony Blinken, informed the United Nations Security Council that they couldn’t confirm Russia was reducing its forces.
Blinken has accepted an invitation to meet with Russian Foreign Minister Sergei Lavrov next week, boosting hopes of a diplomatic solution to the situation and allowing risk flows to return to markets ahead of the weekend. Nonetheless, market players were cautious when US Secretary of Defense James Mattis stated that Russia was still pushing soldiers toward the border and was capable of launching an attack.
Geopolitics is likely to remain the primary market driver next week. A de-escalation of tensions could trigger a risk rally and cause gold to come under heavy selling pressure. On the other hand, a prolonged threat of a Russian invasion could provide another boost to gold by forcing investors to stay away from risk-sensitive assets. On Thursday, the US Bureau of Economic Analysis’ second estimate of fourth-quarter GDP growth will be looked upon for fresh impetus.
Despite the fact that the market has already priced in many rate hikes this year, US financial conditions remain expansionary in comparison to pre-covid levels, and we believe that further tightening will be required to reduce present inflationary pressures.
To extend its rally, gold must get over $1900 psychological level and begin to use that level as support. It’s worth noticing that the daily chart’s Relative Strength Index (RSI) indicator is presently over 70, indicating overbought conditions. Gold saw a significant decline the last time the daily RSI climbed above 70, in mid-November. At domestic levels, Rs 50000 is the psychological barrier, that prices need to sustain above to touch Rs 52000.