Bullish Momentum For Gold

 Gold ticked to a fresh 2-month high of 1,821 on Monday following the speedy recovery during the past two trading days, which boosted the price by a whopping 2.7%. Gold finally settled near the top end of its daily trading range and touched a fresh two-month high around $1,825 during the Asian session on Tuesday. Overall, markets are looking better by the year-end as the Fed taper announcements are due, and with a $90B bond purchases program per month, and later would be decided in the short term. Gold is at an interesting juncture now, both technically and fundamentally speaking. Here are some of the key factors influencing gold right now - 

• Real yield - Real yields are the bond yield minus inflation. Falling real yields are suitable for gold, and rising real yields are unsuitable. The recent patient stance from the Fed means that the recent surge in the US bond yields can pull back.
• USD - Time and again gold has always been compared with the USD. The US dollar traded lower against all the major currencies on Monday despite a good jobs report and a rise in the Treasury yields. The greenback typically takes its cue from yields, as a brighter outlook for the U.S. economy spurs rate hike expectations which can create demand for the greenback. However, over the past week, we’ve seen the correlation diminish with the dollar completely decoupling from yields in the last 24 hours.

  Remember that although gold is a commodity, the XAUSD often acts as a sort of hybrid between a currency and a commodity. Now, to get the very best opportunities for gold, we also need to see the USD moving in a way that complements gold. The USD has a strong impact on gold as the strength hinders gold, and the weakness of USD helps gold soar higher. A patch of USD weakness and then gold should surge strongly higher into $1900.

  Gold’s seasonal demands are excellent around the end of the year. If you take the time between now and the end of February, you can see that gold has risen 72% of the time in the last 25 years and had an average return of 3.89%. The physical demand for gold often picks up around the end of December. So, the end of December is the best time from a seasonal perspective to purchase gold and gold coins in Mumbai.

• Inflation - The U.S. inflation numbers are due for release this week, and economists are looking for hot numbers that will add pressure on the Federal Reserve to consider rate hikes next year. At the same time, some USD traders are worried that the stickiness of inflation could squeeze consumers in the coming months. Now, this means that real yields should fall as well since inflationary pressures remain the same. This is what has been lifting gold post the Fed interest rate decision.So, this is the key to note. As long as the Fed remains patient on rising inflation rates, then that will support gold and gold dealers in Mumbai.

Prices of gold and gold coins in Mumbai are off the two-month highs but maintain their bullish momentum, as September highs of $1834 remain in sight. Gold price continues to remain underpinned by the market uncertainty over the next policy move by the Fed after Chair Jerome Powell said that they remain patient on rate hikes a week ago. The bright metal remains at the mercy of the dynamics in the US dollar and the Treasury yields, as investors await the US inflation data for the next direction in the gold price.

The chance of gold heading towards $1900-$1915 by the end of the year is high since it weathers $1775-$1800 so well in the past six to eight weeks. Now for the week, the $1800-1850 range is on the cards for extremely short-term traders.

The focus is now on Wednesday’s Consumer Price Index inflation data that could test the Fed’s stance on rate hikes, as tightness in the labour market combined with global supply chain issues could result in another high reading. It also comes on the heels of several Fed officials expressing growing concerns over more persistent price increases. But the Fed vice-Chair Richard Clarida and Chicago Fed President Charles Evans suggested a rate hike was not yet on the cards.

Gold has benefited from near-zero interest rates introduced during the pandemic as they reduce bullion’s opportunity cost. To summarize, the gold dealers in Mumbai expect a push for more gains in the short-term, though whether it will exit its three-month-old range area above $1,833 remains to be seen.

Time For Gold To Wake Up

 Last week was highly volatile. Gold had a pretty short covering on Friday as it ranged from $1790 - $1815, but just within a few hours, it reclaimed back $1785 - $1790. Silver, on the other hand, was up to nearly 10% in the past 4-5 weeks. And now, after forming a base near $23.75-24.00, it steadied for $25.50 early this week.

Yellen said categorically that this higher inflation could last until mid-2022. In retrospect, small investors remained negative towards gold concerning gold ETF holdings falling consistently over the last two weeks. With the US Dollar forging a temporary lower low to start the new week, we give the edge to the bull camp and bullion dealers in India. As indicated already, surging Bitcoin and other inflationary signals could finally be "waking up" gold and silver!

The US markets are again hitting new life highs with Tesla staying under the spotlight as it attained a $1 trillion MACAP. Gold almost hit our target near $1713, but silver legged the momentum. Gold ended above $1800 on Monday for the first time since 14th September. But gold will face a hurdle in the short term by staying near $1815 - $1820. It could see a big round of short-covering while taking out of this band. However, before that, $1795 - $1800 consolidation is possible.

There was a slight recovery in the dollar, but this was not a good thing for gold and gold dealers in Mumbai. However, prices are not expected to fall sharply, as investors have realised that the bigger picture is even more uncertain and that risks are still just behind the corner.

Gold prices fell on Tuesday after a five-session rally, as the dollar steadied, and investors awaited key central bank meetings for clues about rate hikes amid rising inflation concerns. Investors have shifted focus to the policy meetings of the Bank of Japan (BoJ) and Bank of England, and the European Central Bank (ECB) due on Thursday, followed by next week’s U.S. Federal Reserve. The US GDP data for the third quarter was also on their radar.

Gold is often considered as an inflation hedge, though reduced stimulus and interest rate hikes push government bond yields up, increasing non-interest bearing bullion’s opportunity cost. Gold should remain relatively well-supported in the current inflationary environment until we get a hawkish pivot from the Fed.

Given the tremendous inflation pressures currently exerting themselves in the economy, the late 1970s may be the best model for what to expect going forward. It would mean the rising price levels are combined with a weak economy (stagflation). And given that the US debt load today is over four times higher as a share of the economy than it was in the 1970s, investors should brace for the potential of a far greater financial crisis. When it comes to a financial crisis, investors will want to have gold on their side based on data from yesteryear, pleasing the gold dealers in Mumbai. It is well known that in times of uncertainty and a financial crisis, gold has always proved its worth as it has vastly outperformed other assets in its class.

From a micro perspective, investors only have to look at the current market landscape, and as many analysts are eyeing inflation as the next major market disruption. The talks of stagflation, higher interest rates, and low economic growth could provide the perfect backdrop for investors to start adding gold. Should the markets get shaken up again, gold can offer an ideal respite from equities exposure.