In the MCX, gold has established a double bottom pattern approximately at the 58,300 level, with any additional decline anticipated only if it drops below this threshold.
Inflation appears to be a persistent issue, as indicated by the US CPI report and PPI data. Particularly noteworthy is the increase in wholesale prices that is expected to filter down to consumers, resulting in both CPI and PPI figures surpassing expectations. This significant upswing is primarily attributed to a spike in energy costs, driven by the OPEC+ supply restrictions, and its inflationary impact is evident across various sectors.
It's an unusual occurrence to witness both Crude Oil and the dollar/Treasury yields moving in parallel, but currently, both asset categories are on an upward trend. As a result, Gold has reached a 10-month low, although it experienced a rebound from the $1900 mark, where we've previously observed support forming. Should Gold close below $1900, it may revert to its prior support region at $1875. Following the release of yesterday's Producer Price Index (PPI) data, the likelihood of the Federal Reserve implementing a pause during their upcoming September FOMC meeting has not decreased.
As indicated by the CME's FedWatch tool, there is currently a 97% likelihood that the Federal Reserve will maintain the pause on rate hikes that commenced during the last FOMC meeting in July. Since their initial rate increase in March 2022, the Federal Reserve has consistently raised rates during subsequent FOMC meetings. The probability of another pause in November has also risen to 66.6% from 57.4%, suggesting that the market anticipates no imminent rate hikes. Additionally, the European Central Bank (ECB) raised its rates yesterday and issued dovish statements, signaling the conclusion of their rate hike cycle. This development bodes well for the outlook of gold.
In the MCX market, gold has established a double bottom pattern, finding support in the vicinity of 58,300. Any additional decline is only anticipated if it falls below this level. On the upside, the nearest obstacle is at 59,000, with another one at 59,500. The momentum oscillator has begun to show positive signs, although confirmation is required, especially since the RSI_14 stands at 43, and confirmation would be achieved once it surpasses the 50 mark. Gold prices are also trading below both the 20 and 50-day moving averages, indicating a prevailing weakness in the trend. Nevertheless, gold's ability to hold up against robust US economic data and a strengthening US dollar provides a silver lining.
Investors have exhibited a strong interest in purchasing gold in the vicinity of the $1900 range, as gold currently hovers around its established support area. We suggest considering a long position with a target of 59,200 and a stop loss set at 58,300. As previously mentioned in the MCX market, a double bottom pattern has taken shape, and any breach below this pattern could potentially lead to a decline towards 57,500. Therefore, it's advisable to maintain a tight stop loss at 58,300 on a closing basis for any long positions.
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