Uncertainty is at paramount level enveloping the global financial markets with a thick cloud over the future course of stability and growth. Many economic and political events are lined up in this year which are causing more unrest among the investors raising concerns over the short medium term outlook of the equity/commodity markets for returns as well as investment opportunities.
Gold which is, perhaps now can be regarded as the second best option to fight uncertainty has been on the rise since 2017 started, but here lies a key confusing element of price movement when compared to dollar which is still hovering near its all time highs but yet the gold demand seems to spur and the prices are going northwards irrespective of the higher dollar. This move defines the markets have digested the stronger dollar and thus its making low to no impact on the Yellow metal as well as other dollar denominated commodities.
Dollar which has been on a tear since the last U.S Federal policy which increased the interest rate pushing the dollar index to all time highs is having no clear impact on either metals,oil or equities rather these three are pushing higher. Dollar is regarded as the safe haven in today’s scenario but the appeal though attracting investments, it is still not much conclusive seeing the price movement of Gold and other precious metals although another 5% rise will definitely change the perspective which is lingering at the moment.An argument is still on that prices of precious metals may not increase much if the dollar remains strong which it will seeing the incoming turbulence in the coming months.
Current scenario is suggesting large funds are flowing into Japan , America , Europe whereas the emerging markets are actually seeing a sell off.
Indian market is battling with its own set of problems caused due to demonetization and the road ahead with the yearly budget round the corner.
Trades are a bit tricky as there is a chance to get chopped on either side that is get trapped on either of the call of going long or short given the unorthodox price movements.
Gold can be bought on dips as the price might not see the lows due to the rise in global uncertainty and the lined-up political events in this year.
U.S Fed has pointed out at 3 rate hikes in the current year this weekend which might lead to even more stronger dollar though it is facing resistance at higher levels.
Gold prices today gained in Asian trading hours rebounding from recent lows which was a result of Hawkish commentary by the Fed more than the rate hike. A persistent stronger U.S dollar index is still capping the positive movement in the yellow metal.
Gold is trading a 0.48% or $5.45 higher with silver following up with a 1.28% or $0.205 gain.
Gold prices had fallen overnight to settle at 10 month lows on account of risk on trades in developed markets across the globe.
Demand for the yellow metal has fallen in India due to liquidity crisis caused by demonetization drive who is one of the largest importer of physical gold.
Weekly Gold chart suggests a support at $1131.5
Weekly Silver chart suggests a support at $15.850
Last night Federal Reserve of America hiked the interest rate by quarter of a percentage point as expected along with a strong hawkish commentary. A 3 time rise of interest rate in the next year and similar pattern till 2019 was the forecast by the Fed which sent the equity as well as the commodity markets spiraling down with Dollar index the key beneficiary gaining over 1%.
Since morning yet again the dollar index is gaining momentum as the day progresses with a hike of 0.43% at 102.47 last checked during the opening hour of European trading session.
Now what lies in store along the path with a Higher Dollar index? its precious metals as well as emerging markets which are feeling the heat of a stronger dollar with Asian markets closing in red with substantial cuts excepting Japan which traded higher on account of a weaker yen, India trading almost flat and European markets trading modestly higher with a positive bias, also American index futures showing a hint of green too.
This suggests fund flows into Developed markets rather than Emerging markets, which was earlier vice versa in this year with EMs getting most of the attraction around the globe.
Dollar index technically has room for more upside with gains possibly facing resistance around 102.81 level according to the bullish trend line where as a breakout above this level opens up the corridor towards 104 mark.
Just hours before the critical decision of Federal Reserve of America for a highly anticipated rate hike which duly has been factored in by the capital markets across the globe, precious metals are trading in positive territory with gold up 0.4% or $4.6 at $1163.60 and silver up 0.59% or $0.101 at $17.078 where as dollar index is trading slightly in negative zone with a 0.16 0r 0.16% cut at 100.92 during the Asian hours of trading.
How are the technicals of both metals shaping up ? i have already covered gold in this post – Gold ready to glitter back again
Technically daily Silver chart is showing a median point of $16.836 which is derived out of the merger of 2 trend lines criss-crossing at that point.
Bullish trend line suggests a price movement towards the $18 level while on the other hand bearish trend line suggests a move slightly lower than $16 making the $16.836 level more or less placed at 50% between the 2 decisive points.
This price point can likely act as a good support in short term, a decisive violation may result in sub $16 pricing for this shiny metal.
A rebound rally is expected to be in store for silver as most of the negativity arisen due the Fed rate hike is already in the price but a knee jerk reaction towards the level of $16.836 may not be ruled out either when the policy is announced later in the day.
Gold and gold mining stocks have been under pressure for quite a while due to higher dollar and has struggled to rally resulting in extremely oversold conditions.
Even though making a new low last week the sector seems to be set up for a rebounding phase.
The ever so crucial Federal Reserve of America policy outcome on Wednesday can strike a bullish tone as a rate hike has already been factored in the price confirmed by a combination of a higher dollar index and a grinding lower precious metal prices.(A higher dollar index has long been slated as extremely negative for precious metals).
Even a hawkish commentary might not be able to push gold prices to a new low as most negativity is already in the price thus making the situation highly likely for a rebound in the precious metal sector.
Technically gold is having a key support at $1144, with the range of $1144-$1162 acting as a wide support in the chart.
A test of $1144 before rebounding may not be ruled out either which can be a possibility on the policy day.
Daily Gold chart showing the key support lines.
For gold stocks, it would be a similar to gold price movement, that is they can also move a little bit down before start of the rebound.
Above technicals have a conflicting scenario that gold and gold mining stocks could drop a little bit more before starting the rebound. This drop may happen immediately after the policy by Federal Reserve of America is announced on Wednesday.
Once this is over the sector could be in a position to a Post-Fed rally as expected.
Friday, day after the monthly expiry of November contract saw massive buying pulling nifty above 8100 during close. Nifty had started the week opening above 8000 but fell to as low as 7910 during the week testing the earlier low of 7920, expiry day as it generally pans out was extremely volatile with traders getting trapped on both sides of the short and long positions, but today such buying took everybody by surprise causing many short positions to cover thus propelling nifty even higher.
Though it can be still said, Nifty was unable to test its 200 DMA at 8150 due to lack of participation by the banking sector in the upmove still creating doubt over the longevity and stability of the ferocious rally.
Mostly all sectors had participated in the uptrend baring Autos and select Bank stocks.
Stand out sector was IT on weaker rupee/stronger dollar with most stocks gaining over 5%
Pharma stood second to IT in the large pullback.
Week on week, even with such volatile moves nifty managed to close in positive after long time.
It can be perceived that nifty still remains range bound between 8150-7900 levels, but a breakout on either side would cause a big move as nifty is in expansionary phase.
Zinc has been in a bull market for more than 6 months, will a higher dollar cap its run is a question asked by the aggressive move in dollar index post the U.S presidential election day.
The metal is perhaps into a bull market of its own at the moment while the gains in other base metals are paused due to a higher dollar.
On daily chart zinc broke its long term trend line at 177 INR and massive resistance at 173 INR five days back but a wave off profit taking and global cues pushed the prices back below the 173 mark. On friday, the metal finally closed at 173.25 INR above its resistance level thus resuming the uptrend even on the back of 14 yr high dollar index.
Now remains the task of breaking the long term trend line which if it does in coming days will take the price higher to 181 INR which is perceived to be yet another resistance on the chart.
While month on month , Zinc clearly broke the trend line in the start of the month.
Being a Friday, a minor pullback was anticipated after a week long sell-off in mostly every sector, but a higher dollar index dismissed the hopes as market continued to see selling pressure on any intraday pullbacks.
Again a gap-up opening was instantly sold into dragging the index below 8100 levels, any tries to reach the 200 DMA was used to short. Index was in choppy waters throughout the day with even a 10-20 point rally being sold into closing at 8074 with a minor cut of 6 points.
Index tested the long term support of 8040 which was seen as a buying opportunity by many investors, while on the up side it managed to reach 8128 but failed to go above 8130 which now acted as a key resistance.
Most of the sectors were in the red excepting select pharma and bank names. Metals saw deep gashes on account of a higher dollar which was comfortably trading at 14 yr highs.
Metals and banks which was considered to be trading on a positive note a day back saw cuts firming a break down across all sectors caused due to domestic issue of demonetization and a higher dollar which is seen a a key negative for emerging markets.
Among metals on Hind Zinc saw a flat closing due to higher zinc prices on the commodities front and Sun Pharma was the clear leader in Pharma sector with more than 2% points uptick.
Copper on Friday touched its peak of its long term trend line at $2.717 on over 6% gains during Asian trading sessions which was followed by massive selloff due to profit taking and risk off trades during American session of trading where it saw cuts of above 8% from its morning highs resulting in a negative close of about 2%.
Point to notice here is even when its peak in negative territory , it failed to go below the strong technical level of $2.501 which it had broken on the upside a day earlier suggesting clearly the metal was not wanting to break on the down side even in such volatile market scenario where everything was under severe selling pressure.
Obviously the candle stick formed was bearish as the price retreated from very high levels.
Trading on the next day was expected to be on the down side which happened but case here was opposite where the metal rose from its day’s lows which broke the key technical level but to close in flat-negative zone way above the level forming a bullish candle firming the sentiment that it was not wanting to go into a bearish market again which it could have had it closed below the $2.501.
On the bullish front, it needs to close above the next resistance of $2.570 to continue the upside and in some time break the long term trend line to stay in a very powerful bull market of metals.
Today, Copper rose above the resistance of 2.570 during Asian trading session but yet again retreated from it as the European markets opened. Final movement of the day will happen when the American markets open later in the day either on the bullish or bearish side.
It is anticipated the metal will continue its uptrend as the markets globally are trading on sharps gains with commodities not seeing the selloff it did on Friday.
Stocks in Focus during Indian trading session would be Hindalco and Vedanta.
On Friday, Nifty lost over 200 points ending below 8300 while the sensex lost over 650 as risk off trades re-spurred. Most the the selling was majorly due to demonetization which the Government ensued just a day before U.S election result to curb black money.
Sectors which saw a good crack were IT , Financials, Auto, Oil and Gas, Consumer goods and Realty.
Pharma was again the top performing sector with Metals not falling much due to Trump’s policies over Infrastructure spends and Biotechnology.
Point to notice – Nifty again reversed from its 8600 levels from where the initial fall had started thus pointing that the expansionary movement is set to be on the down side. It failed to hold 8360 mark which was one of the crucial supports only broken intraday on the extremely volatile election day.
On such a down day , Pharma sector was still battling for the bulls, with metal stocks supporting by not falling much due to metal prices trading at high levels fueled by sentiments from the election result on the commodities front.
From above it can be perceived that a retest of 200 DMA near 8100 levels might be on the cards yet again after the unexpected global rally on the upside.