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Gold prices at 4-week peak on inflation, economic growth worries; may trade sideways to up this week

gold, silver, MCX, commodities

By Tapan Patel

Commodity prices traded mixed with bullion prices recovering from lows on inflation worries. Base metals traded weak on China lockdown fears and demand growth concerns. Crude oil prices rallied above $120 per barrel on tight supplies and record demand for the summer season. Gold prices traded higher with spot gold prices at COMEX rose by more than 1% to $1872 per ounce for the week.

Gold August futures at MCX gained by 0.77% to Rs. 51701 per 10 gram along with Indian Rupee depreciation. The spot rupee fell by 0.27% at 77.84 against the dollar for the week hitting all time low. Gold ETF holdings witnessed inflows as holdings at SPDR Gold Shares rose to 1068 tonnes from previous week’s 1066 tonnes. The CFTC data showed that money managers increased their net position by 7100 lots last week.

Silver prices ended marginal down with spot silver prices at COMEX fell by 0.16% to $21.89 per ounce for the week. MCX Silver July futures ended up by 0.42% to Rs. 61929 per KG for the week. Silver prices traded under pressure during the week on weaker demand for industrial metals. Prices pared some weekly losses on Friday with safe haven buying in precious metals. The CFTC data showed that money managers increased their net position by 4423 lots in the last week to five week high.

Bullion prices recovered sharply on Friday with Gold prices rose to four week peak on inflationary bets and economic growth worries. The global equity indices fell with US stocks reporting the worst fall in three weeks after the latest reading on U.S. inflation showed 41-year highs that suggested the Federal Reserve could get more aggressive with rate hikes. The US Consumer Price Index grew by 8.6% during the year to May, expanding by its fastest rate since 1981. The weak US data including consumer confidence boosted buying in safe haven assets on Friday.  

The Dollar Index, which pits the greenback against six other major currencies, hit a three-week high of 104.23. U.S. bond yields, led by returns on the 10-year Treasury note hit a one month high of 3.17%. The precious metals prices may keep a firm trading range with high volatility ahead of the US FOMC meeting, the rally in crude oil prices may keep inflation hedge demand up for bullion for medium term. 

We expect gold prices to trade sideways to up this week with COMEX spot gold resistance at $1920 per ounce and support at $1810 per ounce. At MCX, Gold August prices have near term resistance at Rs. 52300 per 10 grams and support at Rs. 50500 per 10 gram. COMEX Spot silver has near term resistance at $22.90 per ounce with support at $21.40 per ounce. MCX Silver July has important resistance at Rs. 63800 per KG and support at Rs. 59800 per KG.

(Tapan Patel, Senior Analyst (Commodities), HDFC Securities. Views expressed are the author’s own.)

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