Gold leans on safe haven charm, even demand is lending a hand

By Manoj Kumar Jain

Gold prices are on the cusp of a rally. Call it safe haven appeal or whatever, the ongoing trade slugfest between the US and China has lent that extra edge. Plus, there is demand traction making a comeback.

The prices are consolidating in the range of $1,195-1,205 in international markets. The metal came under pressure above $1,200 on signs that the US economy is on a firm footing and the Federal Reserve is on track to raise interest rates. Second, the trade tariff confrontation is not helping matters, which may dent demand. Third, strength of the dollar against emerging market currencies may keep gold prices in check.


The emerging market contagion is also making things look scary. The EMs are now stepping up their gold reserves to hedge any weakness in currencies. Demand for gold in India is also improving rapidly, which is second largest consumer after China.

The safe haven demand of the yellow metal is expected to rest on the trade duel between Washington and Beijing and the resultant uncertainty. We expect it to consolidate in $1,195-1,205 and break out above $1,200 in international markets.

At MCX, gold prices are sustaining above Rs 30,000 per 10 grams and taking support in Rs 30,200-30,400 band. Considering demand, gold prices could rally from the current levels.

Technical chart of gold

(Source: investing.com)

Technical view of gold

Gold made a low of $1,160 in August, but then bounced. With a long consolidation in $1,190-1,205, the metal has corrected almost $200 from the high of $1,360 in April 2018.

If we look the Fibonacci retracement level of 38.2 per cent, it comes to around $1,235. And it’s already above Fibonacci retracement of 23.2 per cent.

Looking at the technical chart and the long consolidation, we expect gold prices to make an upmove in coming days. Comex Gold is also expected to test $1,222-1,236 levels.

Gold will show some weakness only once it closes below $1,188. In that case, it could test $1,174-1,160, but such chances are remote. At MCX, gold is consolidating above Rs 30,000 levels.

Chances are, gold prices could rally up to Rs 30,800-31,000. Traders can buy and accumulate gold in Rs 30,300-30,400, with strict stop loss of Rs 30,100 on a closing basis for upside target of Rs 30,800-31,000.

Recommendations
Buy gold Rs 30,300-30,400 Stop loss Rs 30,100 (Closing basis) Target Rs 30,800-31,000

(Manoj Kumar Jain is Director of Commodity and Currency at IndiaNivesh Commodities. He has 20 years of experience in financial service sector. Views expressed in this article are author's own and do not represent those of ETMarkets.com. Readers are advised to consult their financial advisers before taking any position based on these observations)