By Bhavik Patel
Gold scaled $1900 and is trading at two week high thanks to dip in US dollar index and Treasury yields. On Wednesday, we saw a sharp fall in the US dollar after service PMI came disappointing worldwide. The S&P Global Flash U.S. manufacturing PMI data dropped to 47.0%, down from July’s reading of 49. According to consensus estimates, economists were looking for a relatively unchanged reading at 48.9. US manufacturing activity has fallen to two month low while Europe and US’s service PMI has fallen to six month low. A near stalling of business activity in August raises doubts over the strength of U.S. economic growth in the third quarter and many participants think that the US Fed might not raise any rates this year.
Silver meanwhile has outperformed goldthis week on the back of short covering. Silver’s current short squeeze started building last week when the People’s Bank of China intervened in currency markets to support the yuan after it hit a 16-year low against the U.S. dollar. Three weeks ago we saw speculative positions were at net short of 4000 contracts and China’s central bank intervention prompted short covering and provided tail wind as other base metals too rallied.
Technical Outlook
In MCX, 58,000 seems to be strong support while in COMEX, $1870 seems to be strong support. Although gold price will see some volatility post the Fed’s chairman statement in the evening, we believe even if there is a hawkish note, looking at gold rate’s resilience, we would be inclined more towards taking buy on dip approach rather than sell on rise. Momentum indicator does suggest some weakness as RSI_14 is at 46. Any correction around 58,000 would be a good opportunity to go long with a stop loss of 57,600 and expected target of 59,000.
(Bhavik Patel is a commodity and currency analyst at Tradebull Securities. Views expressed are the author’s own. Please consult your financial advisor before investing.)