Gold price rebounds as US dollar retraces from 3-month high. Should you buy?

Gold rate today: Following weakness in the US dollar after release of US labour data showing slower wage growth, gold prices bounced back strongly on the weekend session. Gold future contract for the month of April 2023 on Multi Commodity Exchange (MCX) gained ₹829 per 10 gm and ended at ₹56,130 levels on Friday. In international spot market, gold price logged over 2 per cent rise on Friday and finished at around $1,867 per ounce levels.

According to commodity market experts, gold rates today is in uptrend as US labour data showing slower wage growth has eased the US inflation concern and hence market is expecting modest US Fed rate hike. They said that gold rate today has immediate support placed at $1,820 per once levels and on upper side it is facing hurdles at $1,890 per ounce levels. On MCX, they said that gold price has immediate support placed at ₹55,200 whereas it is facing resistance at ₹56,700 and ₹57,200 per 10 gm levels. They said that overall trend for the yellow metal is bullish as news of bankruptcy of Silver Valley Bank is expected to put equity assets under pressure in near term.

US dollar rate

Speaking on the reason for strong rebound in gold prices, Anuj Gupta, Vice President — Research at IIFL Securities said, "Gold prices corrected recently due to rise in US dollar rates. But, after the release of US labour data showing slower wage growth eased the US inflation concerns as market is now rife with speculation that the US Fed officials may adopt modest rate hike approach in upcoming FOMC meeting scheduled this month. This modest US Fed rate hike speculation triggered selling pressure in the US dollar that resulted in retracement in Dollar Index from its 3-month highs."

US Dollar Index tumbled 0.65 per cent on Friday and closed at 104.625 levels.

On key triggers that helped yellow metal pare its recent route, market expert Sugandha Sachdeva said, "The key economic data of the week highlighted that the US economy witnessed an addition of 311,000 jobs, more than the expectations of 205,000 jobs, but the unemployment rate edged higher to 3.6 per cent as compared to a historically low level of 3.4 per cent last month, and wage growth slowed down. This has narrowed the expectations of a 50-bps rate hike at the Fed’s March meeting and acted as a key tailwind for the steep recovery in gold prices." Sugandha went on to add that the significant volatility in equities has led investors to flock to gold as a portfolio diversifier.

Silicon Valley Bank crisis

On why gold prices skyrocketed on Friday deals, Nirpendra Yadav, Senior Commodity Research Analyst at Swastika Investmart said, "Recovery in precious yellow metal price can be attributed to an 8 per cent decline in cryptocurrency Bitcoin along with rising US unemployment claims and the unemployment rate. The news of the bankruptcy of Silicon Valley Bank put selling pressure on the equity market, which also supported precious metals at lower levels."

Gold price outlook

Asked about gold price outlook in near term, Sugandha Sachdeva said, "For the week ahead, the precious metal looks set to target levels of around ₹56,700 per 10 gm and $1,890 per ounce, while support will reside at ₹55,200 per 10 gm mark ($1,820 per ounce). Focus will now shift to the next reading of the US Consumer Price Index, which will shape the expectations regarding the next rate hike and also provide further clarity about the trajectory of gold prices in the near term."

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.