By Bhavik Patel
The Federal Reserve maintained interest rates same on Wednesday while adopting a more dovish stance and admitting that efforts to reduce inflation have failed, which sent gold prices into an upward spiral.
The central bank’s indication that additional rate hikes are unlikely in the foreseeable future helped the precious metal, which is frequently seen as a hedge against inflation. “It seems unlikely that the next policy rate move will be a hike,” stated Federal Reserve Chair Jerome Powell at his news conference after the FOMC meeting.
This comment was in contrast to the Fed’s earlier, more aggressive rhetoric, which was focused on the necessity of ongoing rate rises to control inflation that was stubbornly high. The FOMC statement and Powell’s comments were perceived as a dovish pivot by market participants, who had been anticipating a more hawkish stance from the Fed.
Gold prices saw a major lift from the Fed’s recognition of halted progress and its unwillingness to commit to more tightening, even as the bank left open the potential of further rate hikes if inflation fails to subside.
For gold and silver it was matter of no bad news is good news which is why there was some relief rally however if gold sustains the rally will rely on now Non-Farm payroll data due on Friday. Any weak data might propel gold further up while any stronger than expected data could again see gold giving up the gains.
Gold in MCX on daily chart still is in positive territory as momentum oscillator RSI_14 is above 50 indicating bullish bias. 70380 is the level to watch out for as that is the low of ‘Bearish belt hold’ candlestick pattern formed on 30Apr and any trend reversal is expected below that level.
The follow up selling failed to materialize after ‘Bearish Belt Hold’ candlestick pattern suggesting bulls still trying to control the market. On the flipside, 71750-72000 is the immediate resistance. Both gold and silver is unlikely to display any extreme moves till Non-Farm payroll data comes. Any further direction and confidence will only come after that data so we recommend buy at any correction with stoploss of 70380.
(Bhavik Patel is a senior commodity and currency analyst at Tradebull Securities. Views expressed are the author’s own. Please consult your financial advisor before investing.)