By Bhavik Patel
Gold rose above $1985 this week but a strong USD limited gold’s upside. The U.S. dollar index breached the key psychological level of 100 Thursday. Investors are looking for safety outside of some of the chaos and uncertainty that we see in the markets and that is why they are looking for safe-haven demand which is why the US dollar has been appreciating. Renewed pressure from the stronger U.S. dollar could keep gold stuck in a trading range until the index falls back below 100.
Rising yields in the U.S. are also boosting the greenback and pressuring the precious metal. Fundamentals and still intact for bullish momentum in gold, but a stronger dollar is limiting gold’s rally. If the dollar dips back down towards the 99-98 range, that will make it a lot easier for gold to break through $2,000. Upcoming Fed reserve meeting in May and BOE interest rate announcement will be placed close attention by gold traders.
Risk aversion is a bit keener heading into a long three-day holiday weekend for many countries and that may have somewhat limited selling pressure on the safe-haven metals. On MCX, gold is stuck in the range of 52000-53500. Any further breakout is expected above 53500. 50000 is a solid support and we believe it is strong support that is unlikely to break right now. Long positions can be further added above 53500 for the target of 55000.
In short term, we are bullish although do not expect any runaway rally due to the strong US dollar. As mentioned, the US dollar index needs to come below 98 for a further rally in gold prices. It will be difficult for gold to cross $2000 with rising US yields and dollar. Expect gold to trade in the range of 51500-53500 next week and traders could wait for some correction near 52300-52000 for buy with a stop loss of 51000 and an upside target of 53500. Data to watch next week would be on Wednesday: U.S. existing home sales, Thursday US jobless claims and Friday Manufacturing PMI.
(Bhavik Patel is a Commodity & currency analyst at Tradebulls Securities. The views expressed are the author’s own. Please consult your financial advisor before investing.)
