Introduction to Gold Prices
Gold prices are rallying again, driven by expectations of a US Federal Reserve rate cut and China’s increased gold buying. However, Praveen Singh, a senior research analyst, recommends buying the dip rather than chasing the rally. In this article, we will explore the current gold price outlook and what levels investors should watch out for.
Gold Performance
Gold prices have surged sharply higher due to Fed rate cut expectations, a wobbly US Dollar, and China’s Central Bank adding gold reserves for the 12th month in a row. At the time of writing, spot gold was trading with a huge daily gain of 2.34% at $4,096, while MCX Gold December contract was up 2.07% at Rs 123,707. Despite this, gold prices posted a weekly loss of $1 to close at $4001, marking the third straight weekly loss.
US Shutdown Likely to End
The US Senate has advanced a plan to end the longest-ever US government shutdown, which has entered its fourth week. A faction of moderate Democrats defied their party leaders and voted to support a deal to end the ongoing shutdown. The shutdown may intensify stress on the US air-traffic system ahead of the busy Thanksgiving travel period.
Fedspeak
Federal Reserve Bank of St Louis President James Bullard expects the US economy to bounce back strongly early next year due to rate cuts, fiscal support, deregulation, and the government shutdown ending. However, Federal Reserve Bank of San Francisco President Mary Daly warned against keeping interest rates too high for too long due to softening labor market and moderating wage growth.
US Dollar Index and Yields
The US Dollar Index was up around 0.15% for the day, while ten-year US yields were up by around 1.50 bps, and two-year yields were up by around 3 bps.
US Data Roundup
The US employment report has not been published in November, making it the second month without a national employment report. The September employment report may be published on November 19 or November 26, but it may not offer a true picture due to uncertainty over Federal government employment figures. Other reports, such as the October CPI report, may also be delayed.
Gold ETFs and COMEX Inventory
Total known global gold ETF holdings rose for two straight days through November 7 to 97.24 MOz, although they were down for the third consecutive week. China’s domestic gold ETF holdings rose by 79.015 tons in January to September, a steep rise compared to the 29.927 tons gain during the same period last year. COMEX gold eligible inventory at 17.94Moz is around the lowest level since April.
China’s Central Bank Buys Gold for the 12th Month in a Row
China’s official gold reserves stood at 74.09 MOz at the end of October, up from 74.06 MOz a month earlier, indicating that the PBoC bought nearly one ton of gold in October. Uzbekistan’s gold reserves reached $47.85 billion in October, a record high for the fourth straight month.
China’s Gold Consumption Dips
China’s gold consumption dropped 7.95% year-over-year to 682.73 tons in the January-September period, according to the China Gold Association.
Gold Price Outlook
A possible end to the US government shutdown has turned investors’ attention back to Fed rate expectations in October, as the upcoming US data may show a deteriorating economy. Gold is benefiting from China’s extended buying spree and inflation concerns. However, steady US yields and the Dollar may limit the gains. In the very short-term, gold is expected to test the strong resistance around $4160, and a successful breach would open the way to test the resistance in the $4190-$4200 zone. Dip buying is preferred over chasing the rally, with support at $4075/$4025/$3990.
Silver: Sharply Up
MCX Silver December contract surged to 153,650, up 4% for the day. The metal may test the resistance around Rs 158,500, as it has taken out the strong resistance at $49.30 (Rs 150,000), which will act as a support now. Next support comes in at $48.50 (Rs 148,000). Dip buying is preferred over chasing the current rally.
Conclusion
In conclusion, gold prices are rallying due to expectations of a US Federal Reserve rate cut and China’s increased gold buying. However, investors should be cautious and prefer buying the dip rather than chasing the rally. The gold price outlook is positive, with a possible test of the strong resistance around $4160 and support at $4075/$4025/$3990. Silver is also sharply up, with a possible test of the resistance around Rs 158,500 and support at $48.50 (Rs 148,000). As always, it is essential to keep an eye on the latest developments and adjust investment strategies accordingly.
