Gold price dips after four weeks rally. Is it a buying opportunity?

According to commodity market experts, spot gold price has immediate support placed at $1,730 per ounce levels whereas major support is still placed at $1,670 per ounce levels. On MCX, gold price has immediate support placed at around ₹51,000 levels whereas major support is still placed at 48,750 to ₹48,800 per 10 gm levels. They said that strong dollar is expected to put pressure on the gold price and the precious yellow metal may come close to its immediate support. However, they maintained that overall ‘outlook for gold price’ is ‘sideways to positive.’

Reasons for dip in gold price

Speaking on the reasons that led to slide in gold price, Sugandha Sachdeva, Vice President — Commodity & Currency Research at Religare Broking said, “After four consecutive weeks of gains, the gold rally paused and prices gave way to selling pressure while facing resistance around the psychological $1800 per ounce mark. It was majorly the strength in the dollar index which acted as a key headwind for the precious metal. The dollar index has retreated by around 3 per cent since testing lows of 104.63 mark, leading to this corrective wave in gold prices, and pushing them towards a three-week low. The greenback picked up steam as market participants focused on the minutes of the July Fed meeting, which indicated that the policymakers remain committed to raising interest rates, until they are convinced that inflation has come down substantially. US CPI grew by 8.5 per cent in July as compared to a year ago levels, after surging by 9.1 per cent in the 12 months to June.”

Besides, several Fed officials have talked up the need for further super-sized rate hikes to combat runaway inflation, after the release of upbeat US macroeconomic data, which helped the DX gain further strength towards one-month highs at the close of the week, while weighing on gold. In terms of other key data, inflation in the UK accelerated more than expected by 10.1 per cent in July from a year earlier. This is the highest reading in 40 years. With inflation likely to rise further in the UK due to the energy crisis, it has raised concerns that central banks are likely to stick to their tightening path, further weighing on non-interest-bearing gold.

Gold price outlook

Asked about gold price outlook in near term, Anuj Gupta, Vice President — Research at IIFL Securities said, “Overall, outlook for gold price is sideways to positive and one should avoid taking any short position in the precious metal in short term. In spot market, gold price has immediate support placed at $1,730 to $1,735 per ounce levels whereas its major support is placed at $1,670 per ounce levels. On MCX, gold price has immediate support placed at ₹51,000 per 10 gm levels whereas it has major support placed at ₹48,750 to ₹48,800 per 10 gm levels.”

The IIFL Securities experts went on to add that strength in dollar is expected to keep yellow metal price under pressure for some time and advised gold investors to buy yellow metal at around $1,730 to $1,735 per ounce levels in spot market and around ₹51,000 levels in domestic market.

“As for the outlook ahead, prices look to witness some more downswing but are likely to find initial support at ₹51,400 per 10 gm and key support at ₹50,700 per 10 gm zone from where one can look for bargain buying opportunities. In the international markets, the level of $1750 per ounce is still providing some support to gold prices, but once that is breached, gold will eye the $1730 per ounce mark in the coming days. However, with Fed tightening expectations underpinning the dollar index, all eyes would be on the Jackson Hole Symposium next week that will provide further cues for gold prices,” Sugandha Sachdeva of Religare said.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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