Gold price rebounds from 6-week low. Is it an opportunity for bargain buying?

Gold rate today: Despite hawkish rhetoric of various US Fed officials, spot gold price bounced back after hitting its six week low of $1,680 per ounce. Gold future contract for the month of October 2022 finished ₹165 higher at ₹50,521 per 10 gm levels on Friday, ending its three weeks losing streak. In spot market, precious bullion metal finished at 1,716 levels, logging 0.45 per cent intraday gain on the weekend session. Reason for this rise in gold rates can be attributed mainly to ease in dollar index after the surprise 75 bps interest rate hike by the European Central Bank (ECB). After hitting the 20-year high of 110.78 levels, dollar index finally settled at 108.945 on Friday.

According to commodity market experts, spot gold rate is expected to trade in the range of $1,680 to $1,755 per ounce range whereas MCX gold rate may oscillate in ₹49,800 to ₹51,200 per 10 gm range in near term perspective. However, they maintained that ECB has raised interest rates by 75 bps that is going to cap dollar index surge in short term and hence bargain hunters should avoid taking short position in the precious metal and maintain 'buy on dips' strategy till gold rates remain in the given range in domestic and international markets.

Reasons for rise in gold rates

On what triggered rally on gold price this week, Sugandha Sachdeva, VP-Commodity & Currency Research at Religare Broking said, "Gold prices snapped a three-week losing streak and bounced back from close to the long-standing support of the $1680 per ounce mark despite the hawkish rhetoric of various Fed officials. The Fed chair in his recent address at the Cato Institute's annual monetary conference upheld a resolve to tame runaway inflation, cementing expectations of another super-sized rate hike at the Fed’s September meeting. The stellar rally in the dollar index paused after testing a fresh two-decade high of the 110.78 mark, and it ended with a cut of around 0.63% for the week. Meanwhile, the European Central Bank raised interest rates by a record 75bps, taking its benchmark deposit rate to 0.75% in an attempt to maintain price stability even as they are facing the worst energy crisis in several years."

The Religare analyst went on to add that Russia has stopped flows of natural gas to Europe through Nord Stream 1 pipeline, in its bid to inflict economic pain on the region. The Bank of Canada also opted for a 75bps rate hike in its recent meeting and signaled more rate hikes. These large rate hikes by other central banks suppressed the dollar index and prompted flows into the safety of gold. Crude oil prices also witnessed a steep decline towards a 7-month low owing to slowdown concerns and more Covid-19 curbs in China. However, they recovered some lost ground towards the close of the week as the OPEC and allies have agreed to reduce October output by 100,000 bpd to prop up prices and amid threats by the Russian President to halt energy exports to Europe, if price caps are imposed. This might lead to some cool-off in inflation in the near term and push the Fed to slow down its pace of rate hikes towards the fourth quarter of the year, which shall underpin gold prices.

"ECB was expected to turn interest rates positive for the first time in 11 years with a 50-basis point hike, but it surprised everyone with an aggressive 75 - basis point increase. With the announcement of higher rates from the ECB, the Euro recovered some of its lost grounds against the USD, leading to a small relief rally in gold," said Pritam Patnaik, Head - Commodities, HNI and NRI Acquisitions at Axis Securities.

Gold price outlook

On key pivot levels in regard to gold price in domestic and international markets, Amit Sajeja, Vice President — Research at Motilal Oswal said, "Spot gold price has strong support at $1,680 per ounce levels whereas it has immediate hurdle placed at $1,755 per ounce levels. On MCX, gold rates have immediate support at ₹49,800 per 10 gm levels whereas it is facing immediate hurdle at ₹51,200 per 10 gm levels."

The Motilal Oswal expert maintained that surprise interest rate hike by various central banks including ECB is expected to keep dollar index under pressure in near term that means overall outlook for gold is sideways to positive. So, 'bargain hunters' should maintain buy on dips strategy and avoid taking short position till gold rates are in above mentioned respective ranges in domestic and international markets.

On suggestion for positional gold investors, Sugandha Sachdeva of Religare Broking said, "At the domestic markets, one can buy gold on declines around ₹49,200 to ₹49,400 per 10 gm zone for higher levels of around ₹51,200 to ₹51,700 per 10 gm from a near-term perspective. The precious metal has a strong cushion area at ₹48,800 per 10 gm and prices look to respect this level on a closing basis."

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.