Since mid-May, gold has been trading in a very narrow range of $ 1,280-$ 1,305 per ounce. The 2018 high is at around $ 1,366 per ounce, which is nothing but a range of 5 per cent from the current market price of around $ 1,300. Moreover, the volumes have been short of expectations for an investor.
On the MCX, gold prices have traded in a range of 2 per cent (Rs 30,500-31,200) since mid-May 2018.
Optimism is back in the US economy
The uncertainty seems to have reduced from all corners of the globe. The meeting of the US President Donald Trump and North Korean leader Kim Jong Un on June 12, receding political uncertainty in Italy, optimistic data sets from the US, rate hike by the US Fed, stronger US non-farm payrolls data are all triggers for gold to head lower.
The consumption side clearly indicates that all is not well when it comes to investor’s interest on the physical demand side of the story. The Perth Mint’s sales of gold products in the US fell about 2.4 per cent in May from a month earlier, the lowest in over a year. On the other side, reports from GFMS suggests that India’s gold imports plunged for a fifth straight month in May to 48 tonnes, as a rally in local prices to near highest levels in 21 months curtailed retail purchases.
Speculative flows and inflation expectations
Money managers have been consistently liquidating their net longs in gold in three out of past five weeks. Net longs stood at 1,14,363 contracts as on April 29, 2018 and the current net longs as on June 10, stood at around 58,066 contracts, reflecting investor interest in gold has been falling.
Although the US economy has been growing for the large part of 2018, the inflation expectations were flat in May after several months of gains, while Americans grew more pessimistic about income and spending growth, according to a Federal Reserve Bank of New York survey.
Since the start of 2018, the expectations of rate hikes by the US Fed have been doing rounds, but how many times will the rate hike happen was a question for the market participants. The market expects the Fed to raise the rate two more times in 2018. Inflation is expected to accelerate, meeting the US Fed’s 2 per cent target in 2018. The Fed will continue to wind down the $ 4 trillion in holdings it acquired during quantitative easing.
We think $ 1,240 on the lower side and $ 1,340 on the higher side are two possibilities, as there is no uncertainty surrounding the yellow metal at present. Any investment in gold will not give fruitful returns.
On the MCX, Rs 30,500 and Rs 30,100 are price points to accumulate and one should not invest in gold prices at current levels of around Rs 31,200 mark.
(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)