Gold slips below Rs 50,000. Should you short the yellow metal?

New Delhi: Gold prices, while extending weakness, breached the Rs 50,000 mark on Thursday. This happened after over a year as the yellow metal slumped to 16-month lows.

The rising interest rates over the inflationary worries and the dollar flexing its muscles have hit the bullion hard, which yields nothing on its own. The yellow metals’ appeal as a hedge against inflation has also lost its charm.

Sugandha Sachdeva, VP- Commodity & Currency Research,

Broking, said that gold prices have been moving on a downward trajectory since the beginning of July, and the bullion saw a steep fall.

“The yellow metal was pressurized by the rising inter rates globally and upside in US dollar, which is hovering near two-decade highs, denting the bullion’s appeal,” she added.

Tapan Patel, Senior Analyst (Commodities),

Securities, said that gold prices are expected to trade under pressure further on a stronger dollar amid political conflict in Europe and the upcoming US FOMC meeting.

“The US Fed’s stance to tackle record inflation and series of rate hikes may continue to underline the demand for non-interest yielding assets like gold,” he added.

Fed meet’s expectations
The United States Federal Reserve is expected to meet next week, July 27-28 and the traders are anticipating a 75 basis point rate hike against a full percentage point increase.

There is a possibility that the fall in bullion might witness a pause as central banks may tame down their aggression in rate hikes, the market experts suggest. This would weigh on the greenback, giving gold some respite.

The US Fed is likely to opt for another large interest rate hike of 75 basis points at its forthcoming meeting to combat runaway inflation which is already discounted by the markets, according to Sachdeva from Religare Broking.

“Global growth fears and concerns about widespread inflationary pressures are likely to underpin gold prices at lower levels,” she added.

What should investors do
Experts suggest that the rupee depreciation has led to a lot of divergence between the international and domestic gold prices. They are expecting some recovery, if the gold holds above the key support levels and suggest avoiding shorts.

“We expect gold prices to test support near Rs 47,800 per 10 grams with COMEX Spot support near $1,620 with breach of $1,676 per ounce,” said Patel from HDFC Securities.

However, he suggested that investors should short the gold with a stop loss of Rs 50,500 and support at 49,500 and Rs 48,900 for the short term.

On the contrary, Rahul Kalantri, VP commodities, Mehta Equities suggested that investors or traders not go short on gold but rather buy it at current levels.

“This is a good level to buy gold for the short term with a target of Rs 50,500 and Rs 51,000 with a stop loss of Rs 49,350,” he said. “One should short only below $1,665 in international terms and Rs 49,350 in the domestic market,” he added.

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