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Informist, Friday, Oct. 4, 2024

 

By Sandeep Sinha

 

MUMBAI – Gold prices are likely to consolidate at the current level with a positive bias in October as fear of widening conflict in West Asia supports safe-haven demand. Money managers increasing their bullish positions to the highest level since February 2020, growing appetite for gold exchange-traded funds in the western world, and the US Federal Reserve embarking on interest rate cut are also seen lifting sentiment for the yellow metal.

 

The start of the festival season and imports tripling on a monthly basis in August in the second-biggest consumer, India, will also lend support to bullion prices. The yellow metal imports in India tripled to 135.9 tonnes in August, from 43.6 tonnes in July, as jewellers stocked up on the yellow metal ahead of the festival season, according to commerce ministry data.

 

"The reasons investors continue to pay record prices for gold boil down to concerns about global developments from fiscal profligacy, geopolitics, and 'de-dollarisation' from central banks, as well as its general safe-haven appeal. A supportive rate-cutting cycle from the US Federal Reserve adds to the mix," Ole Hansen, head of commodity strategy at Saxo Bank, said in his Quarterly Outlook.

 

"Given the prospect of these underlying demand trends not going away anytime soon, we forecast further upside to gold ahead of year-end and into 2025, when the yellow metal has the potential to reach another psychological mark of $3,000 an ounce," Hansen said.

 

For now, investors await US non-farm payrolls data for September, consumer price index data, and the Federal Open Market Committee's September meeting minutes later this month for further cues.

 

On the Multi Commodity Exchange of India Ltd., December gold futures are seen at INR 74,200-INR 77,500 per 10 gm this month, according to the median of estimates of 16 brokerage houses polled by Informist. On the COMEX, prices are seen at $2,577.5-$2,735 an ounce.

 

"Gold prices are well-supported due to geopolitical concerns, since ceasefire negotiations (between Israel and Hezbollah) are unlikely to take place anytime soon. On the geopolitical front, Iran launched more than 180 ballistic missiles toward Israel on Tuesday, increasing the possibility of a full-scale Middle East (West Asia) conflict. This prompted an Israeli assault on central Beirut, Lebanon, early on Thursday," Renisha Chainani, research head at Augmont Gold For All, said.

 

Gold holdings with SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose for the third consecutive month by 9.2 tonnes to 871.74 tonnes in September as the US rate cut lowered investors' opportunity costs of holding gold.

 

The latest report from the World Gold Council showed that global central banks purchased 8 tonnes of gold in August, the least since March. The sharp rise in gold prices led many central banks to adopt a wait-and-see approach, it said.

 

At the time of writing this report, the most-active December gold contract on the MCX was at INR 76,330 per 10 gm and the same-month contract on the COMEX was at $2,678.9 an ounce. On Sept. 26, gold hit an all-time high of $2,708.70 an ounce on the COMEX because of the deteriorating situation in West Asia.

 

"The technical outlook for gold remains favourable, as the 14-day Relative Strength Index (RSI) holds firm above 65, despite a slight pullback from 77," Riya Singh, research analyst, commodities and currency, Emkay Global Financial Services Ltd., said. The Relative Strength Index measures the recent change in prices to analyse overbought and oversold levels. A level below 30 indicates oversold and above 70 indicates overbought levels. "For gold to extend its bullish momentum, a decisive close above the $2,675–$2,685 (an ounce) range is required, which would pave the way for a renewed upward trajectory towards the next target zone of $2,710–$2,725," Singh said. 

 

The key support is positioned between $2,625 and $2,600 an ounce. A close above the static resistance near $2,670 an ounce is essential for a continuation of the upward movement, Singh said.

 

In September, the yellow metal delivered returns of 4.9% on month on the MCX and 5.2% on the COMEX because of steep interest rate cut by the US Federal Reserve and safe-haven demand. For the first nine months of this year, the yellow metal delivered 27.1% returns on the COMEX and 19% on the MCX. The returns in the domestic market are not comparable with those in the international market, as Finance Minister Nirmala Sitharaman had, in her Budget 2024-25 (Apr-Mar) speech on Jul 23, announced a cut in the basic customs duty on gold and silver to 6% from 15%, which led to a sharp drop in gold prices.

 

"One should warrant some caution before placing aggressive directional bets as the market awaits the Nonfarm Payrolls report on Friday," Chainani said. The Federal Reserve Chair Jerome Powell's more hawkish comments on Monday and the upcoming improved US job market statistics may help the US dollar maintain its rebound from its lowest point since July 2023, she said.

 

Manav Modi, bullion analyst at Motilal Oswal Financial Services said, after a sharp gain in recent months, we could see some consolidation near the recent highs. Historically, gold has never added gains of 32% in any year since 2000. "We expect gold to correct by 5-7%, before the next leg up," he said.

 

Conversely, a breach of the $2,624-an-ounce support could trigger a decline towards $2,600-an-ounce, a critical level for a potential bullish reversal. Should this occur, heightened selling pressure may push the price towards $2,548, aligning with the 61.8% Fibonacci retracement from the recent peak, Singh said.

 

Following is a summary of a poll by Informist on gold prices in October and details of estimates by respondents, in alphabetical order:

 

Brokerage house	MCX support (INR/10 gm)	MCX resistance (INR/10 gm)	COMEX support ($/oz)	COMEX resistance ($/oz)
Angel One	73,800	77,500	2,530	2,730
Augmont Gold for All	73,500	78,000	2,575	2,750
Axis Securities	74,500	77,500	2,580	2,700
BlinkX by JM Financial	73,900	78,000	2,620	2,780
Emkay Global	75,350	76,800	2,548	2,725
Finlit Consulting	75,500	77,500	2,550	2,750
HDFC Securities	74,800	76,600	2,570	2,685
ICICI Securities	74,200	77,500	2,600	2,780
Kedia Comtrade	74,800	76,500	2,570	2,720
Kotak Securities	73,800	77,800	2,587	2,760
Mehta Securities	73,000	76,500	2,540	2,700
Motilal Oswal	73,200	77,500	2,580	2,730
Prithvi Finmart	74,200	77,500	2,580	2,740
Reliance Securities	72,450	77,600	2,530	2,740
SMC Global	74,350	77,900	2,580	2,740
Sharekhan by BNP Paribas	74,500	77,300	2,600	2,725
Median	74,200	77,500	2,577.5	2,735

 

End

US$1 = INR 83.97

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Manisha Baxla

 

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