By Bhavik Patel
Gold prices have declined for last three consecutive days with 22th April (Monday) decline being the biggest in last two years. That being said, gold is still showing a respectable 17.06% gain from one year ago.
The main factor that caused gold prices to drop significantly in a single day (-$60) was the reduction of the risk premium associated with Middle East tensions. The Fed and economic reports are once again in the spotlight. It will be more difficult for the Fed to lower rates if we see strong inflation numbers, and gold may fall below $2,250.
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The Q1 GDP figure on Thursday and the core PCE inflation statistics for March—the Fed’s preferred inflation measure—will be the next two important reports. Experts predict that in March, the core PCE index would slightly slowdown from its February annual pace of 2.8% to 2.7%. It is anticipated that the PCE will increase from 2.5% to 2.6% overall.
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The CME’s FedWatch tool now implies the first 25 basis point rate cut is more likely in September rather than June as previously anticipated. Traders no longer anticipate the Fed lowering rates by 75 basis points by year-end from the current 5.25-5.5% range.
The fall in gold this week following the record surge is further explained by the fact that a delay in Fed rate cuts makes the metal less appealing hedge for portfolios. However, a correction which was on the cards is not going to mean the end of the bullish trend.
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Gold in MCX is taking support at its 21-day moving average. Although we believe short term top has been placed around 73300 as plenty of reversal candlesticks pattern like ‘Bearish Belt Hold’ and ‘spinning top’ are confirming.
Immediate support is around 70,000 while immediate target is around 72,200. Friday’s US PCE data are very important this week for gold and we believe any fresh direction will only come after data has been published. For today and tomorrow, we expect gold price to trade sideways with slightly bearish bias.
(Bhavik Patel is a commodity and currency analyst at Tradebull Securities. Views expressed are the author’s own. Please consult your financial advisor before investing.)
