Gold prices at 15-day high, hold or add long positions; silver trend bullish, may follow gold’s action

Gold is in the sweet spot as higher inflation is good for precious metals and also any beginning of economic recession also helps gold in gaining grounds

By Bhavik Patel

Gold and silver prices have started on a strong note this week after a rally in crude oil prices. Risk aversion continues to be the need of the hour for investors which are why we are seeing safe haven demand for gold and US dollars. The Russia-Ukraine war and its widespread market implications continue on the front burner for gold. Global bond market yields have been rising sharply recently, with U.S. Treasury yields are nearing three-year highs after the US Fed chairman suggested that they could be more hawkish and a 50 basis hike also cannot be ruled out. The U.S. 2-year and 10-year yield curve is very close to inverting, which would begin to suggest a U.S. economic recession.  

Gold is in the sweet spot as higher inflation is good for precious metals and also any beginning of economic recession also helps gold in gaining grounds. Historically, whenever the US Fed lays out plans for their rate hikes, gold prices make bottom and start to rally. So all factors point to higher gold prices but the only fluid situation is Ukraine-Russia conflict. If the conflict gets solved, then we may see a huge correction in gold prices and rally in riskier assets like equity. However, in the near term, that scenario is unlikely. 

Gold will continue to gain value as long as inflation continues to run hotter. Besides the geopolitical tension that this war has elevated, its effect of reduced exports of necessary goods and services by Russia and Ukraine will make the former supply chain bottleneck look like a walk in the park. The US Fed is also stuck at a lower neutral rate as the US economy cannot withstand an interest rate higher than 2% before getting into recession.  So it would be difficult for the Fed to walk the talk next year to raise rates higher than 2% as the US has the highest debt and will not be able to service it with a higher interest rate.

Gold prices are trading at 15 days high and are once again looking prime for fresh up moves till 53000. 51000 seems to be solid support for now and we are seeing buying emerging around that levels.  Momentum oscillator has also started to turn and prices is also away from the 20 day moving average. All indicators point to higher prices. For next week, one can hold or add long positions with stoploss of 51000 and target of 53500. Silver meanwhile has strong resistance at 70700. 67000 seems to be strong support for now and we can also assume silver will follow gold’s action. Next week range for silver could be between 67200-71200. Trend remains bullish and we would recommend to hold longs till 67000 is not breached on the downside.

(Bhavik Patel is a commodity and currency analyst at Tradebulls Securities. Views expressed are the author’s own. Please consult your financial advisor before investing.)

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