Gold price dips as US dollar rebounds from 7-week low. Buy, hold or exit?

Gold rate today: On account of US dollar rates rebounding from 7-week lows and Dollar Index sustaining above the psychological 102 levels, profit booking triggered in the yellow metal on the weekend session. Gold future contract for April 2023 on Multi Commodity Exchange (MCX) ended at ₹59,310 per 10 gm, logging weekly loss of 0.18 per cent. In international spot market, gold price ended at $1,976.90 per ounce levels, around 0.58 per cent lower from its previous week close of $1,988.50 levels.

According to commodity market experts, this dip in gold price can be attributed to the bounce back witnessed in Us dollar rates from its recent lows. After hitting 7-week low in the week gone by, US dollar gained in recent sessions on upbeat US current account deficit (CAD) and new home sales data. They said that US central bank stated its commitment to bring down inflation and not cut rates this year, market participants are expecting just one more rate hike this year. They went on to add that gold is expected to remain in range of $1,920 to $2,010 per ounce and may continue to retrace from upper hurdle. However, when asked about the strategy for gold investors, they advised investors to maintain 'buy on dips' and avoid taking short position as breakout above $2,000 per ounce on closing basis may fuel gold prices again as Indian National Rupee (INR) is expected to remain weak in near term.

US dollar rate in focus

Speaking on the reasons that pulled down gold prices in the week gone by, Anuj Gupta, Vice President — Research at IIFL Securities said, "Gold prices came down after climbing new peak as US dollar became strong after upbeat US CAD and other data. This helped the US dollar to bounce back from its 7-week lows. This rise in US currency led to profit booking trigger in the precious yellow metal." He said that US dollar rate is expected to remain a major trigger for gold price movement in near term.

Anuj Gupta of IIFL Securities said that gold rate today has immediate support at $1,950 levels whereas major support for the precious yellow metal is placed at $1,920 whereas $2,000 is expected to remain a major hurdle for gold prices in international spot market.

US dollar to INR

Speaking on the reason for rise in dollar price, Anuj Choudhary, Research Analyst at Sharekhan by BNP Paribas said, "Indian Rupee depreciated today due to weak domestic markets and a positive Dollar. Sustained FII outflows also weighed on the domestic currency. Dollar rose on safe haven appeal amid weak Asian and European currencies and equities. Dollar also gained on upbeat US current account deficit and new home sales data. Bank of England hiked interest rates by 25 bps to 4.25%, the highest in 15 years."

"We expect Indian Rupee to trade with a negative bias on risk aversion in global markets and a positive Dollar. Selling pressure from FIIs and month end Dollar demand from importers may also weigh on Rupee. However, easing crude oil prices may support Rupee at lower levels. Traders may remain cautious ahead of durable goods orders and PMI data from US. USDINR spot price is expected to trade in a range of ₹81.80 to ₹82.80," said Anuj Choudhary of Sharekhan by BNP Paribas.

Gold price outlook

"The overall trend is positive for gold, but it would be difficult to surpass the ceiling of the $2000 per ounce mark for gold in a hurry, and only a closing above the same would lead to further advances in the precious metal. Downside support rests at ₹58,500 per 10 gm mark and then ₹58,000 per 10 gm," Market expert Sugandha Sachdeva said.

Sachdeva went on to add that with the greenback witnessing some rebound from the 102-odd levels, one should brace for volatile moves as it can act as a headwind for the precious metals after the sharp upside momentum witnessed in recent days.

Asking bullion traders and investors to remain vigilant about bank crisis in US, Nirpendra Yadav, Senior Commodity Research Analyst at Swastika Investmart said, "Some banks in the United States have gone bankrupt as a result of continued interest rate increases, and further increases in interest rates could exacerbate the banking crisis due to the deteriorating financial condition of many banks. Due to the possibility of a financial crisis, the demand for a safe haven for investment has increased among investors, resulting in which the brightness of gold and silver continuously increasing."

Advising gold investors to maintain 'buy on dips' strategy, Anuj Gupta of IIFL Securities said, "One should maintain buy on dips strategy as gold prices sustaining above $2,000 levels in international spot market may trigger fresh round of rally. Till then, it is expected to remain range-bound in $1,920 to $2,000 levels."

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.