Time for gold to bounce back? Accumulate at current levels for short-term target of Rs 31,600-32,500

If the trade war escalates, then China could sell US treasuries and buy gold.

Gold prices began the last week negatively but bounced back from these lower levels as well. The yellow metal narrowed losses on Friday as US tariffs on Chinese imports weighed on the dollar.

China has implemented additional tariffs on some import products from United States immediately after US tariffs on USD 34 billion in Chinese imports took effect.

If the trade war escalates, then China could sell US treasuries and buy gold. Meanwhile, US central bankers discussed whether recession lurked around the corner and expressed concerns around global trade tensions which could hit the economy.

Minutes of Federal Reserve’s last policy meeting on June 12-13, released on Thursday, hinted at a modestly dovish line by the central bank, even as trade tariff uncertainties persisted. Gold is oversold and hence we could see a bounce back in the yellow metal.

Meanwhile, the dollar index continued to face resistance towards 95.50 and traded weak, thus providing support to gold prices. In the near term, the US currency’s movement will be crucial and if the index fails to sustain above 95.50, it could slide lower, which could result in a sharp pullback in gold prices.

What are the technical charts saying?

After making a bottom in December 2015 around USD 1,045, gold prices rallied towards USD 1370 zones. Since then, prices are consolidating between a broad range of USD 1,370 and USD 1,100 for the last three years.

Prices have formed an inverse ‘Head and Shoulder Pattern’ which will get confirmed above break of neckline. This is placed at $1400. The break could take prices towards $1700 in the long-term.

We can see prices are making higher lows and higher highs after they bottomed out in December 2015. Prices made a higher low of $1124.3 in December 2016, followed by a higher low of $1204 in July 2017. This was followed by a higher low at $1238.3 in December 2017 and now in this recent correction prices have made a low of $1238.8 and bounced higher.

Prices have bounced higher from upward sloping trend line (T1) and there is a very good chance that prices could edge higher from here.

Prices have also taken support at 233 (SMA) indicated in the Orange color on the chart. RSI also is turning higher from the oversold zones, which indicates prices could move northwards from here.

Traders and investors can accumulate gold at current levels for short-term targets of $1300/1350 zones and once prices sustains above $1400, there could be a sharp rally towards $1700/1750 zones in long-term. Risk for this view can be placed at a weekly close below $1220.

In MCX, one can accumulate at current levels for short-term targets of Rs 31,600/Rs 32,500.