Crypto Crash And Weak Dollar Lifts Gold To 4-month High; Prices Seen At Rs 51,000 In 3-4 Months

Bitcoin prices crashed from the highs of $64,778 made on April 14 to the lows of $30,000 on May 19.

Prices have corrected by over 53 percent in one month time from the lifetime highs. Selling pressure was seen in the cryptocurrencies after the statement of Tesla head Elon Musk last month denying accepting crypto payments.

Gold prices caught the momentum after strong selling pressure in the crypto market and buying emerged in the SPDR Gold Trust Exchange Traded Funds.

Gold prices also get support from the weakness in the dollar index and steady benchmark 10-year bond yields.

Inflation concerns, accommodative Federal Reserve monetary policy, and downbeat economic data pushed the dollar index to a five-month low that supported safe-haven buying in the gold.

Retail sales in the month of April showed zero percent growth and the core retail sales slipped to negative. CPI inflation rose to record highs in the month of April.

Gold prices were hovering near a four-month high as of May 17 in the international markets and crossed $1870 per troy ounce mark.

Looking at the rise in global inflation, geopolitical tensions between Israel and Palestine, and weakness in the dollar, we expect the international gold prices to test $2000 levels in the next 3-4 months.

As far as the dollar index is concerned, it has strong support in the range of 89.80-89.20 zone and once it breaches 89.20, a free fall is expected towards 86.70 levels that could support prices of the gold.

Technical view: (Weekly technical chart of the gold futures contract)

Gold 20 May

India MCX Gold made a high of Rs 56,191 in August 2020 and showed a sharp correction since then. Prices corrected to Rs 43,320 levels in the month of March 2021.

The price of yellow metal is down by about 23 percent from the highs. Prices retraced 51.5% of its total rally of Rs 24959 points from the lows of Rs 31,232 in May 2019 to the highs of Rs 56,191 in August 2020.

Weekly technical chart hint that the formation of bullish engulfing pattern around Rs 43,500 levels is likely to resume the uptrend. Looking at the Fibonacci retracement levels of the current fall of Rs 12871 points (from the high of Rs 56,191 in the month of August 2020 to the lows of Rs 43,320 in the month of March 2021) it gives a retracement of 38.2% and crossed the level of Rs 48237 on May 17, 2021. 61.8% price retracement of the current fall of Rs 12871 points is coming at Rs 51,274 levels. Looking to the weekly RSI that is placed above 60 levels also indicates an uptrend in the prices.We expect gold in the rupee term could test Rs 51,274 levels in the next 3-4 month time and Rs 45,800 will act as major support for the prices.

At Comex, division prices are expected to test $2000 per troy ounce levels again in 3-4 months and $1788 acts as major support for the prices.

Recommendations:

Buy on dips around Rs 48000-47500 with stop loss below 45,800 for the price target of Rs 51,000.

(The author is Director & Head of Commodity Research)

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