Is Gold out of the Woods

Comex Gold SPOT Weekly Chart

Mr. Ketan Kothari, Director of Augmont Gold For All.

Out of the Woods means Out of difficulty or danger. Gold prices had been trading in a down-trend channel line since March 2022, with prices creating lower highs and lower low patterns. But November has been a turning point for Gold. A turning point is a point at which the price of an asset reverses direction. Turning points tend to occur at a fixed rhythm in time. COMEX Gold SPOT prices have turned up and have gained $170 from a low of $1620 to $1790. In fact, gold prices have given a breakout after breaking the important channel resistance of $1670 and sustaining above it.

Triple Bottom pattern

Moreover, prices have formed a ‘Triple Bottom Pattern’ around $1618 on daily charts. The triple bottom price pattern is defined by three failed attempts to drive the price through a level of support. The triple bottom is a bullish reversal pattern that appears at the bottom of a downtrend. After the sellers failed to break the support in three consecutive attempts, this candlestick pattern indicates an impending change in trend direction.

Fundamental Reasons for reversal

● US Inflation peaking out

Yellow metal got this positive momentum from US CPI data which showed that inflation has been cooling for the last four months after topping at 9.1% in July 2022. The October CPI report for the US came in at 7.7 percent higher YOY, below estimates for a 7.9 percent increase, and contrasts with the 8.2 percent increase observed in the September report. US CPI is a very important indicator for FED in deciding the monetary policy for the US. The inflation rate is projected to fall as money supply growth slows, possibly falling below pre-pandemic levels. And because monetary policy has a significant lag, the consequences of the FED’s aggressive moves have yet to be fully realized by the economy.

● Expectation of change in Monetary policy stance

The softer-than-expected CPI figure strengthens the case for a slower pace of hikes at the December FED meeting. So far, the FED has maintained a hard, hawkish face, but as the economic situation deteriorates, their monetary stance will change. This has led to a return of the dollar’s downward trend, opening the door for gold to launch a big recovery. Market participants now expect the FED to raise interest rates by 50bps at its December meeting, rather than 75 bps expected earlier.

● Possibility of Stagflation rising

The FED’s monetary policy remains too easy, rather than too restrictive. This is a setup for stagflation, not successful deflation. Actually, stagflation is a genuine possibility, as the next recession will be accompanied by more inflation than the previous ones. This is because stagflation causes both economic standstill and high inflation. Most assets become weak when assaulted by two attackers at the same moment, and gold tends to outperform them.

This is not surprising given that during stagflation, there is a great deal of economic uncertainty, trust in the central bank is low, and real interest rates are falling, with some plunging into negative territory. In other words, stagflation boosts gold’s underlying fundamentals.

Way Forward

As discussed above, the fundamentals and techniques for the gold market have changed in the last month and it seems, gold is out of the woods or bearish phase. Moreover, strong marriage season demand from India and strong Investment demand from central banks will
keep supported. World Gold ETF investors, who have been on side-lines or sellers are likely to jump into this market to realize the price rally.
As the rally in gold prices has been too fast, we can see some retracement in prices, but that would be an ideal opportunity to buy gold on dips around $1700 (Rs 51000/ 10 gm) for the next upleg rally up to $1900 (Rs 55000/ 10 gm) in next few months.

Best way to stay invested in Gold

The best way to stay invested and take advantage of this gold rally is to buy Digi Gold from Augmont Gold for all. It is suitable for consumers who desire the benefits of both investing in gold and the ability to easily accept physical delivery. Indians are the world’s second-largest buyers of actual gold. Apart from jewellery, we utilize it as a present and as part of every household’s possession. For individuals looking to collect gold with the eventual option of delivery, digital gold is a safe, convenient, and hassle-free choice. The convenience and speed of the internet are combined with the safety and security of traditional gold purchases in digital gold. Digital gold is seen as a more secure and cost-effective investment alternative, which can be bought 24*7 for as low as Re1.

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