Gold price retraces from life-time highs. Should you buy or wait for more dip?

According to market experts, US dollar index and US bond yiled have rebounded from oversold zone and it has put breaks on gold price rally. They said that yellow metal price witnessed some buying interest during mid weekend session, when dollar index dipped below 103 levels for a while. However, they maintained that overall bias for gold price is positive and one should maintain ‘buy on dips’ strategy and avoid taking any short position in the precious bullion metal.

On reason for dip in gold prices last week, Anuj Gupta, Vice President — Research at IIFL Securities said, “In the week gone by, US dollar rates and US bond yield witnessed bounce back from its oversold zone. This put breaks on the gold price rally and triggered profit booking trigger. Buying interest in gold was witnessed during mid session on Friday when dollar index came below 103 levels. But, US dollar soon recovered and hence gold again witnessed profit booking in last few hours trade on Friday.”

On reason for high divergence in gold prices last week, market expert Sugandha Sachdeva said, “The divergence was seen primarily on the back of the rupee weakness wherein the domestic currency lost by 0.84 per cent against the US dollar. The hawkish rhetoric from various Fed officials during the week highlighting the need for further rate increases in their effort to bring down inflation was the prime reason, which suppressed gold prices. Markets are now repricing Fed terminal rate expectations, which prompted a rise in the greenback towards one-month highs and acted as a headwind for gold prices.”

“The post-Diwali rally in the precious metal has started to fizzle out, as space is left for more interest rate hikes. However, the fear of economic recession due to interest rate hikes still supports precious metal prices. Short-term US Treasury yields have crossed higher than long-term yields, indicating danger for the US economy,” said Nirpendra Yadav, Senior Commodity Research Analyst at Swastika Investmart.

“European banks stopped selling gold, and emerging economies such as Russia, Turkey, and India bought. Central banks are increasingly buying gold because it retains its value in turbulent times, and unlike currencies and bonds, it is not dependent on any issuer or government. This week, data from the US, inflation (CPI) on Tuesday, retail sales on Wednesday, and PPI on Thursday will be necessary for the price of precious metals,” Yadav added.

Advising buy on dips strategy in near term, Anuj Gupta said, “One should avoid taking any short position in gold. Gold price around ₹56,600 is a good buying zone for a short term target of ₹57,000 to ₹57,100 levels. However, one must maintain stop loss at ₹56,350 levels.” He said that spot gold price in international market has support placed at $1,835 levels whereas it is facing resistance at $1,890 per ounce. On breaching the upper hurdle, gold prices may go up to $1,920 levels.

Speaking on gold price outlook for near term, Sugandha Sachdeva said, “Going ahead, key support for gold rests at ₹56,500 per 10 gm mark and $1,860 per ounce, which can yet again entice buying interest and fuel prices. However, any convincing violation of the mentioned support would pave the way for a potential target of ₹55,500 per 10 gm mark for the precious metal.”

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.