Gold fails to shine again, prices likely to fall towards $1,220 level

By Prathamesh Mallya

For investors across the globe, investments in the yellow metal have not yielded any good results as far as prices are concerned. Gold prices in the international market at the start of the year stood at around $1,280, while the April 2019 closing prices were also the same.

For investors in India, the MCX gold prices traded in the range of Rs 1,000 since the start of February, making a low of Rs 31,400 and a high of Rs 32,400. However, since the start of the year gold prices have risen by 1.7 per cent on the MCX.

Economic data from the US ring the bells
In 2019, the dollar index has been at its highest points since June 2017, clearly indicating bright spots in the US economy with the major economic data points being released giving a sense of optimism.

Strong housing data has eased concerns of slowdown in the US economy with new single family home sales at record 1.5-year highs in March. According to the Commerce Department, new home sales increased 4.5 per cent to a seasonally adjusted annual rate of 6,92,000 units last month, the highest level since November 2017.

The United States is on a firmer footing compared with other leading economies.

Fed plays Game of Thrones
The Federal Reserve is likely to leave interest rates unchanged this year given risks to the US economy from a global slowdown and uncertainty over trade policies and financial conditions, according to the minutes from its March 19-20 policy meeting. The policymakers also agreed to be “patient” about making any moves on rates. Moreover, the recently concluded FED meeting on May 1 also signalled that they are keeping interest rates steady and said this approach will not change anytime soon.

Liquidation in gold
Money managers have been liquidating their gold portfolios for quite some time now. Money managers were net longs in gold at 79,757 contracts as on March 31. This has been converted in to net shorts at 22,328 contracts as on April 28, indicating weakness in momentum for gold price.

Outlook
Gold prices have taken a back seat as investors across the globe are waiting for solid inflation numbers or some political changes in the US. Moreover, on the technical front, gold's break below key support levels, including the 100-day moving average ($1287/oz) and 50-day moving averages in the recent week has signaled a further downside to prices.

Stronger dollar index on the other hand is acting as a strong factor for further weakness in gold. We expect gold prices in the international markets to move lower towards $1,220 from a month perspective while MCX gold prices will move lower towards Rs 30,700 during the same time.

(Prathamesh Mallya is Chief Analyst, Non-Agri Commodities and Currencies at Angel Broking. Investors should consult their financial advisers before taking any investment calls based on this article)