Gold Analysis
Afternoon: Gold Market Rising Prospects Amid Rate Cut Expectations and Geopolitical Tensions
Highlights:
- US interest rate cut likelihood boosts gold prices,
- Bank of Japan holds rates causing yen to plunge,
- China pauses gold reserves purchases for the third month.
Overview:
Gold prices crept up, buoyed by increased prospects of a US interest rate cut and ongoing Middle Eastern tensions, while traders awaited economic data to gain insights into the Federal Reserve's policy direction. According to the CME FedWatch Tool, there is now a 72% chance of a 50 basis point cut in September, up from 70% earlier in the week, with another decrease expected in December. The Federal Reserve's dovish stance is seen as a potential catalyst for gold prices, as lower interest rates typically reduce the opportunity cost of holding non-yielding assets like gold.
Adding to the market's dynamics, the Bank of Japan downplayed the likelihood of a near-term rate hike, causing the yen to plummet. Bank of Japan Deputy Governor Uchida Shinichi emphasized that the Japanese central bank will not raise interest rates during tumultuous financial markets, which further impacted the yen. Meanwhile, China's central bank held off on adding gold to its reserves for the third consecutive month in July, according to official data. This decision reflects China's cautious approach amid global economic uncertainties.
Traders are also closely monitoring the Reserve Bank of India's policy meeting and key US economic data, including Unemployment Claims and Final Wholesale Inventories, for further cues on market direction. These data points are critical as they provide insight into the health of the US economy and the potential for further monetary policy adjustments.
Technical Levels to watch:
Gold prices are anticipated to find support at $2352 and face resistance at $2412. In the MCX market, gold prices look to get support at ₹69500 and resistance at ₹70400.
Strategic Action Plan
Given the current market conditions, a recommended strategy is to buy on dips around $2382, targeting $2405, with a stop loss set below $2365. This approach aims to capitalize on the potential for gold to rally amid ongoing geopolitical tensions and anticipated monetary easing by the Federal Reserve.
Market Drivers and Considerations
- Federal Reserve Rate Cuts: Increased expectations for a 50 basis point cut in September and a subsequent cut in December are primary drivers for gold prices.
- Geopolitical Tensions: Ongoing conflicts in the Middle East provide a supportive backdrop for gold as a safe-haven asset.
- Central Bank Policies: The Bank of Japan's dovish stance and China's cautious approach to gold reserves are significant factors influencing the market.
- Economic Data: Key economic releases from India and the US will play a pivotal role in shaping market sentiment and gold's price trajectory.
Investors should stay vigilant and adjust their strategies based on emerging data and geopolitical developments to navigate the gold market effectively.
Support and Resistance Levels:
