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Fed’s caution on rate cuts dampens gold’s momentum; Here are the key levels to watch for Gold

By Bhavik Patel

Wednesday trading saw a decline in the price of gold and silver, although they were still quite close to where they were before the Federal Reserve’s recently released report on U.S. monetary policy.

The Federal Reserve’s FOMC meeting minutes were released yesterday and they revealed that even though the Fed’s monetary policy tightening likely peaked, members were still quite concerned about increasing inflation.

According to the minutes, before interest rates are lowered, FOMC members want to see further progress toward the Fed’s target annual inflation rate of 2%. In essence, the Fed is choosing to err on the side of caution and continues to feel uneasy about cutting rates too soon.

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The market is probably viewing the minutes as a little bit hawkish, which is to be expected. Bond prices will rise this year as interest rates decline, which is when demand for gold could rebound.

Gold’s further upside potential is likely to remain limited. This is because a persistently robust US economy, coupled with stubbornly high inflation, argues against a pronounced cycle of rate cuts, meaning that Gold investments would continue to be at a significant disadvantage relative to interest-bearing US assets.

Gold futures had three consecutive days of higher highs, lows, and higher closes until yesterday. Gold had recovered almost 70% of the loss it faced after higher than expected US inflation.

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While upside seems limited, gold has support at every decline as investors/traders manage to catch the fall whenever gold goes below $2000. Any meaningful correction is only expected below $1975. In MCX, strong support emerges around 61000 and only significant correction is expected below that level.

On the higher side, 62800-63000 seems to be the hurdle and supply zone for the precious metal and there aren’t any strong fundamentals to take the metal above that level. So we expect prices to oscillate between 61500-63000 and any dips can be opportunity to buy with stoploss of 61000.

(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.)

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