Gold prices could see a correction in coming days on the back of strong expectation of rate hike by the US central bank, the Federal Reserve, says domestic brokerage Angel Broking in a report. The policymakers of US Federal Reserve meet next week. "Anticipation of rate hike in the US, stronger dollar index, and profit booking at higher levels will be strong factor for lower gold prices in the near term. Weak demand from China and India are also push factors for gold prices to head lower," says Prathamesh Mallya, chief analyst for non-agri commodities and currencies at Angel Broking. A rate hike by the US central bank could trigger outflows safe-haven assets like gold as bonds, backed by US government, could turn more attractive. India is a big importer of gold and the global prices typically sets the domestic prices. Currently in the domestic spot markets, gold prices are hovering around Rs 29,250 per 10 grams.For latest news on Business & Budget 2017, like us on Facebook and follow us on Twitter.
Here is why Angel Broking is bearish on gold, according to its report.
1) In February 2017, comex gold and silver prices (global benchmarks) rose by around 3.7 and 5.2 percent while MCX gold and silver prices rose by around 2.2 and 3.2 in the same time frame. Uncertainty with regards to the new government in the US and its policies led to the rise in precious metals. Investors' interest in gold rose after the US currency suffered its worst January in 30 years. On the contrary, dollar index has risen by around 1.7 percent last month.
2) US Federal Reserve Chair Janet Yellen said that delaying increases could leave the Fed's policymaking committee behind the curve, although she did flag considerable uncertainty over economic policy under President Donald Trump's administration.
3) The data showing rising US wholesale inventories and an unexpectedly low number of Americans filing for unemployment benefits also pushed up the dollar. US retail sales rose more than expected in January and consumer prices recorded their biggest gain in nearly four years, boosting prospects of an interest rate increase from the Fed this month. US residential construction and employment data also showed that the economy continued to rebound.
4) Technically, it is clearly seen that prices correcting from higher levels after making of high of 29,785 levels in the month of February 2017. Technically prices are facing stiff resistance at 29,800 - 30,000 levels.
5) Price may take support at 28,300 levels and then 27800 levels respectively. Below 27,800 levels the strong support could be seen at 27,000 levels. Resistance could be seen at 29,800 levels and then 30500 levels. Trading above 30500 levels may trigger a rally to test strong resistance of 31200 levels.