Gold price trades range-bound on US Fed rate hike worries. Buy or wait for more correction?

According to commodity market experts, gold rates today are weighed by strong US dollar that has climbed to six-month high during the same period. They said that market is expecting interest rate hike in the US Fed’s FOMC meeting scheduled next week and further volatility in the rpecious metal can be expected only after the US Fed meeting. Experts maintained that the US Fed’s fight against inflation has assumed greater importance after the Jackson Hole meet, and this has left gold prices trading in a narrow range in the near term.

US Fed meeting in focus

On what is putting gold prices under pressure, Sugandha Sachdeva, Executive Director & Chief Strategist at Acme Investment Advisors said, “One of the key factors weighing on gold prices is the increasing belief that the US Federal Reserve will implement another interest rate hike by the end of this year. This sentiment stems from the release of robust macroeconomic data, painting a positive picture of the US economy.”

“During the week, the key economic data highlighted that the US headline inflation rose in August to 3.7% on an annual basis, surpassing expectations of a 3.6% increase and exceeding July’s 3.2% figure. This uptick indicates persistent inflationary pressures. However, the prevailing market consensus suggests that the Fed will maintain interest rates at their current levels during its forthcoming policy meeting, scheduled for September 19-20,” Sugandha added.

On reason for rate hike buzz ahead of the US Fed’s FOMC meeting, Dr. Joseph Thomas, Head of Research at Emkay Wealth Management said, “The last address of the Fed Chairman states in no unclear terms the need to hike rates to control inflation, and he acknowledges the probability of below-trend growth in the short term due to interest rate actions. Multiple factors have accorded gold a place in investor portfolios in the last three to five years. These include geopolitical developments, interest rates, economic growth prospects, the need to diversify portfolios, the rising price level, etc. At this juncture, inflation continues to be the singular factor that is supporting gold prices apart from the generally weak global economic outlook.”

Emkay Wealth Management expert maintained that hawkish stance of the US Fed is a matter of concern, as the Fed has already reaffirmed its commitment to keeping its inflation target of 2% intact, and the Fed will not rest until the goal is reached. “The end result is that rather than inflation and uncertainties which could have given Gold an edge but the US Fed’s fight against inflation has assumed greater importance after the Jackson Hole meet which will see gold trading in a narrow range in the near term.”

“During the previous two months gold ETFs witnessed outflows, however during the recent weeks some inflows started trickling in that have helped the yellow metal. The movement in gold is inextricably intertwined with two fundamental factors, the trajectory of US interest rates, and the direction of the US Dollar. The currency outlook has been positive owing to the north-bound interest rate outlook,” Dr. Joseph Thomas said.

However, Thomas maintained that major concern among gold traders is the economic sluggishness in some of the developed countries is not likely to push gold demand higher.

Gold price outlook

Sharing pivot levels in regard to spot gold price, Anuj Gupta, Head — Commodity & Currency at HDFC Securities said, “Gold prices are likely to trade in a broader range of $1,880 to $1,930 ahead of the US Fed’s FOMC meeting scheduled next week. Post-policy volatility in the precious bullion metal prices are likely expand. Falling below $1,880 opens further downside towards the $1,855 level. A recovery above $1,930 will extend the rally towards $1955.” He said that bullish or bearish trend can be assumed on breakage of either side of the $1,880 to $1,930 range.

Anuj Gupta of HDFC Securities went on to add that major support for gold price on MCX is placed at ₹58,000 and resistance is placed at ₹59,000 per 10 gm levels. He said that gold price may go up to ₹59,700 to ₹59,800 per 10 gm levels if it manages to sustain above ₹59,100 levels on closing basis.

Speaking on gold price outlook, Sugandha Sachdeva said, “In our view, gold prices are facing certain headwinds, including the resilience of the US economy, a strengthening US dollar, and concerns about a prolonged period of elevated interest rates. Nonetheless, we anticipate that the precious metal will attract buying interest at lower price levels. This expectation is rooted in the fact that the US central bank appears to be approaching the end of its aggressive interest rate hiking cycle, a development that is typically supportive of gold prices.”

Advising gold traders and investors to remain vigilant about the US Fed meeting outcome, Sugandha Sachdeva said, “The upcoming US Fed meeting is now in focus, as its outcome will provide a clearer trajectory for gold prices. As of now, gold prices have managed to hold well above the crucial support level of ₹58,500 per 10 grams on a closing basis, even in the face of rising greenback. Should this support level hold, gold prices are expected to make a gradual ascent towards the range of ₹59,500 to ₹59,800 per 10 gms in the coming days.”

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

Updated: 16 Sep 2023, 07:25 AM IST