By Bhavik Patel
Gold prices managed to sustain above $1900 after fresh sanctions from West during weekend and Putin puts nuclear deterrent on alert. Inflation is likely to remain high due to strong rally in crude oil prices and supply bottlenecks in commodities. Russia produces roughly 10% of global oil production. Metals prices are at multi-year high with Aluminum (record high) and Nickel posting strong gains as Russia exports these metals to the world. Inflation is a double-edged sword affecting gold prices. Gold has been long considered a haven asset that protects investors from rising inflation. Concurrently, as inflation rises it puts more pressure on the Federal Reserve to raise interest rates, which have a negative or bearish impact on gold.
We believe if gold wants to move higher from here, there needs to be serious escalation between Russia and Ukraine with Western forces drawing into the conflict, otherwise the environment which is gearing for interest rate hike and hawkish central banks, gold prices are not well suited to sustain any meaningful rally.
Gold’s price swings have been dramatic over the last two days. If we look at the sentiment from a retail point of view, investors are very bullish but Wall Street analysts are less bullish and fear that gold prices may have peaked out in the very short term. As mentioned above, for gold prices to move up, we need further escalation in the conflict. Gold was seriously overpriced and was due for a pullback, but technically the price action created a massive shooting star with volume followed by bearish belt hold candlestick pattern, and that does not bode well.
Fresh new momentum for gold will come above $1935. So in the very short term, we remain neutral and would wait for correction till 50000-49500 before taking fresh long positions while at current level, we would only advise to trade intraday and not to have any leveraged long positions or carry any overnight positions. Trading via options is a safer route than in future contracts as risk is limited to premium paid given high volatile scenarios where every day new information regarding Russia-Ukraine is coming out which can move markets in either direction. Support for gold comes at $1877 and in MCX it comes below 49600. Reversal in sentiment or trend reversal will only come below these levels. So any long position can be held with a stoploss of 49600 closing basis in MCX.
(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.)
