Gold prices nudged higher on October 19 as Asian shares fell on renewed political and economic concerns including China’s weak growth. The metal saw a third straight weekly gain.
China’s economy grew 6.5 percent in the third quarter from a year earlier, its weakest pace since the global financial crisis, and missed expectations as a years-long campaign to tackle debt risks and the trade war with the United States began to bite.
With Chinese equity markets continuing to drift lower, and lingering geopolitical risks such as Fed interest rate hikes, Italian budget concerns, and the US-China trade war, stock markets are still shaky. This enhances the safe haven status of gold further in the near-term.
The recent sell-off in global stock markets has boosted the appeal for gold, which is seen as a safe store of value during political and economic uncertainty.
Another indicator of safe haven buying returning to gold is the reversal in sentiment towards the metal increased holding in SPDR Gold Trust, the largest gold-backed ETF. It rose 1.3 percent to 73 tonnes last week. It was the first time since the ETF witnessed inflows since July.
It is also the largest inflow since March 2018. As long as gold was trading in a range, we were witnessing huge outflows, as investors were showing a preference for equity and were focusing on safe-haven currencies like the dollar.
The yellow metal has declined about 10 percent from its April peak after investors preferred the dollar as the US-China trade war unfolded against a background of higher US interest rates.
Gold Technical Analysis:
From the above Comex Gold chart, we can see prices were in a sustained downtrend from April 2018 ($1,360) till August 2018 ($1,170). After that, we have seen some kind of stability and consolidation in the prices.
In this phase of consolidation between August and October 2018 prices have formed an Ascending Triangle pattern depicted by trend line (T1) and (T2) in the above chart and recently prices have given a breakout on the higher side and the measured move of the triangle comes at $1,270.
The prices are comfortably trading above the 20 day SMA (Pink Line) at $1,207 and 50day SMA (Orange Line) at $1,201 which is a positive indication in the short-term and these levels could provide supports again if prices give a dip.
The relative strength index or the RSI is also trading above 50 marks indicating strength in prices for near term. Thus our favoured view is that one can buy gold around $1,200-1,210 zones and look for targets around $1,206-1275 zones in short to medium term.
In MCX we have seen a sharp rise in gold prices that are to rupee weakening towards 74 against the US dollar, so if one is taking positions in MCX Gold needs to hedge it against rupee also and trade accordingly.