Gold as an investment: Long-term story intact, wait for better levels to enter

While the outlook for gold looks good on the back of US-China trade concerns, investors should exercise patience before making any investment in the yellow metal.

The commodity market in general is never void of excitement, this can’t be true for gold. The bullion complex was trading rangebound till the US Fed event, post which the prices corrected sharply, reacting to a more hawkish than expected monetary policy stance by US Federal Reserve.

While the broader market was looking for a good re-entry point in gold, we were devoid of that opportunity over the weekend, as on Sunday President Trump made a statement on the US- China trade issue, which potentially could run the entire negotiation into troubled waters. This led to the gold prices to rally on market opening.

The Fed meeting was a bit hawkish on the US monetary policy, even though there is no clear consensus on the timing or direction of the next interest rate move. The market now feels that there is lesser chance that the US Fed will cut benchmark interest rates in the near term. This had led to pessimism creep back into gold prices.

The central bank’s demand for gold remained undeterred, with the banks buying close to 145.5 metric tonne (MT) of gold, the largest first quarter (January-March 2019) increase in global reserves since 2013. A mandate for diversification and a desire for safe and liquid asset were the main drivers for the central bank buying.

A World Gold Council (WGC) report indicated at an increased demand in the jewellery sector and ETFs. Jewellery demand was primarily up from India due to the wedding season, while ETF flows increased in the funds listed in the US and Europe.

Looking ahead, prices should move higher in the short run, especially after President Trump threatened to impose more punishing tariffs on Chinese goods in an attempt to force additional concessions in the final agreement. President Trump in a tweet warned that he would increase tariffs on USD 200 billion in Chinese goods at the end of the current week and “shortly” impose levies on hundreds of billions of dollars of additional imports.

However, China is still preparing to send a delegation to Washington for the trade talks, despite the latest threats by US President Donald Trump to increase tariffs. Any positive progress from the talks could see bullion prices retreat hastily. No or negative outcome could see US go ahead with the tariffs and in turn push bullion prices higher.

In the short term, given the fact that the market has already reacted to the Trump story, one could wait for better levels to enter gold investments. As of now the long-term story for gold as an investment remains intact.

Technically, MCX Gold has bounce back from Rs 31,250 levels and it is trading above 200-daily moving average (DMA) which is placed at Rs 31,430 levels which suggests upside movement in the counter.

Strategy for MCX Gold June 2019 contract for the week is to buy in the range of Rs 31,450-31,500 with the stop loss of Rs 31,300 and a target price of Rs 31,800.

Base Metals:

Copper: Strategy for MCX Copper June 2019 contract for the week is sell in the range of Rs 432-433 with a stop loss of Rs 438 and a target price of Rs 415.

Nickel: Strategy for MCX Nickel May 2019 contract for the week is sell in the range of Rs 837-840 with a stop loss of Rs 855 and a target price of Rs 810.

Bullions:

Silver: Strategy for MCX Silver July 2019 contract for the week is buy in the range of Rs 37,200-37,250 with a stop loss Rs 37,000 and a target price of Rs 37,800.

Energy:

Crude: Strategy for Crude May 2019 contract for the week is sell in the range of Rs 4,250-4,270 with a stop loss of Rs 2,350 and a target price of Rs 4,080.

Agri Commodities:

Cotton: Strategy for Cotton May 2019 contract for the week is buy in the range of Rs 21,900-21,920 with a stop loss of Rs 21,800 and a target of Rs 22,300.

The author is Head of Commodities at Reliance Commodities

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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Author: Ayaan