By Mr. Prathamesh Mallya, AVP- Research, Non-Agri Commodities and Currencies, Angel One Ltd
Gold prices have been trading in the range of $1680-$1840 since Mid-June till date (28th September 2021), i.e in a range of $200 dollars. There are numerous factors at play in gold markets ranging from the FED winding down its QE programme to the COVID-19 virus still playing havoc across global financial markets. Moreover, rising US Treasury yields and stronger dollar have also been at play in deciding the trajectory of the yellow metal.
Aura of factors leads to lower gold prices
Too many factors are at play in the gold market. Starting from dollar, the index hit a more than one-month high in the recent weeks at (93.60), while the benchmark U.S. 10-year Treasury yields touched its highest level in over three months (1.48%), increasing the opportunity cost for holding non-interest-bearing bullion. Moreover, U.S. central bank officials, have, tied reduction in Fed’s monthly bond purchases to continued job growth, with a September employment report now a potential trigger for the central bank’s bond “taper.”The Fed Chairman Jerome Powell also said that the central bank could begin withdrawing its asset purchases after its November policy meeting as long as U.S. job growth through September is “reasonably strong.”
The investment outflows from the SPDR Gold Trust is also creating pressure on gold prices as the world’s largest gold-backed exchange-traded fund, said its holdings dropped 0.8% to 992.65 as on 24th September 2021, which is at the lowest level since April 2020.
Speculative positions – indicating bearishness in gold
The CFTC positions in the recent weeks indicate that hedge funds and money managers are reducing their exposures in the yellow metal as follows. The net longs in the metal stood at 21954 contracts as on 21st September 2021, when compared to net longs of 1,06,662 contracts as on 1st August 2021. This is clear indication of bearishness in the gold prices in the weeks ahead.
Gold prices headed for a correction
In the chart alongside, gold prices are about to break the rectangle formation on the break of $1740/0z. The break of this levels might trigger further correction towards $1680 mark, a downside of around $80 dollars from the current levels of $1740. On the MCX, this translates to a move of around 1200 rupees from the current levels of Rs.46000 as on 28th September 2021.
Stronger dollar, increased optimism, rising US treasury yields, winding up of the bond buying programme are near term push factors for correction in gold prices. We expect gold prices to move lower towards Rs.45000/10gms mark from a month perspective.
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