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View: Stiff resistance for gold futures at Rs 49,405, time to buy on dips

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MCX gold futures have traded with a positive bias for a second week, facing immediate stiff resistance at Rs 49,405 per 10 grams, according to Navneet Damani of Motilal Oswal Financial Services.

View: Stiff resistance for gold futures at Rs 49,405, time to buy on dips
Gold and silver rallied last week, with the global benchmark having taken out hindrance around $1,750 earlier this month. There was no stopping for gold. Even important resistance levels such as $1,800 and $1,830 could not stop the sharp upside in the yellow metal. The Federal Reserve’s policy at the start of this month and US inflation data last week were among the key factors behind the rally in gold.
Besides, US Treasury yields fell last week from 1.6 percent to 1.4 percent, supporting precious metal prices, with the US treasury yields fell. On the other hand, the dollar and gold moved in sync, as against their typical nature, as rising inflation sent the market into a state of panic, influencing people to stay put and invest in safe havens.
The US central bank meeting earlier this month was important as after a series of hints in earlier meets, market participants were expecting an announcement regarding tapering and some comments regarding inflation and interest rates. The expectations were met as the Fed did announce a $15 billion cut from its $120 billion in monthly asset purchases. The central bank's aim is to finish the tapering action by the mid of next year.
Market participants had discounted tapering action from the Fed, which is why there was not much of a jerk after the announcement. Federal Reserve Chairman Jerome Powell did not comment much on interest rates, and reiterated that inflation was transitory, bringing some uncertainty in the market.
The Bank of England (BoE) surprised the market with its policy meet by not increasing key interest rates.
Safe-haven assets continue to be supported by low interest rates. Gold, considered an inflation hedge, also got a boost from US inflation data last week, which showed the consumer price index rose to 6.2 percent in October, exceeding expectations. The US consumer price data also ignited one of the biggest sell-offs in the short term US government debt since the global market turbulence of March 20. Also, US consumer sentiment weakened to its lowest in a decade, showing market participants’ concerns about rising prices.
In the week ended November 14, investment in gold and silver remained largely steady, with holdings at around 976 and 16,930 tonnes respectively. On the other hand, speculative positions decreased for both gold and silver. Net longs in gold saw selling of 2,363 contracts to 98,888, and those in silver saw a selling of 5,239 contracts to 23,941.
Outlook
Looking ahead, the economic calendar has important events: US retail sales, industrial production, updates on Pfizer's booster shots and newsflow on COVID cases. Volatility in the US yields and the dollar is always an important factor for gauging the direction for bullion. Besides, comments of Federal Reserve officials in their speeches scheduled over the week will be important to watch.
Gold has moved by almost $100 from the lows seen at the start of this month, therefore, some sideways move could be seen this week. A buy-on-dips strategy could be continued on a weekly basis.
Technical view
MCX gold futures have traded with a positive bias for the second back-to-back week, and are facing immediate stiff resistance at Rs 49,405 per 10 grams. The 14-period RSI is at 66 does not give any sign of a trend reversal, something confirmed by MACD. A price sustained break above the recent high will lead the move towards Rs 49,750-50,400 levels. So, the overall bias remains positive and either buying around Rs 48,850 or above resistance will be recommended. Our bias will negate below strong support at Rs 48,400.
--Navneet Damani is VP-Commodity Research at Motilal Oswal Financial Services. The views expressed in this article are his own.
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