Commodity Talk: Bullion volatility is here to stay in near term, says Pritam Patnaik of Axis Securities

We expect volatility in bullion to continue as the global Central banks have made it clear that the era of high-interest rates is here to stay for some time unless they see sustained softening in inflation, says Pritam Patnaik, Head – Commodities, HNI & NRI Acquisitions at Axis Securities. The data trend will establish the price movements in the yellow metal, he adds.

August has been a difficult month for bullion traders with a lot of volatility. What is the outlook for this week and the entire month?
The US Fed walks a tough tightrope balancing jobs and inflation. Unfortunately for them, the mixed data emerging in August has only gone on to complicate their policy stance going forward. Gold prices traded close to their one-month highs before consolidating to end the week up just over 1%, a mixed US jobs report for August, where payrolls came in higher than forecast, but the unemployment rate rose to an 18-month high.The diverse reading conveyed that the Federal Reserve might not immediately resort to more rate hikes to bring inflation to its long-standing target of 2% per annum from the 3% levels it currently is at. It’s not surprising that the November rate hike odds are down to 36%.

With Inflation remaining sticky, jobs growing, and the employment rate below the mandate set by the US Congress at 4%, the volatility is here to stay. Prices are largely going to be data-dependent. On a technical level, looking at the weekly chart, the overall trend for gold prices remains positive. Currently, the market is trading above its 60 Exponential Moving Averages (EMA) on the weekly chart. Additionally, the market is exhibiting higher highs and higher lows, indicating a positive signal. Gold is expected to trade with a positive bias this month.

Gold ended August with MoM declines amid higher dollar index and bond yields. A late recovery saw Gold come back to 1 month-high levels as the dollar slipped. What is your view on global macros that will impact USD, bond yields ultimately impacting Gold?
The dollar index and bond yields rallied before the Jackson Hole Symposium as the market was expecting a surprise move by the Fed to contain inflation. However, the meeting was on the expected line, and the market already discounted the hawkish commentary. This development supported bullion prices at the lower level, and it managed to sustain above the $1,900 level in the spot. The Central banks have made it clear that the era of high-interest rates is here to stay for some time unless they see sustained softening in Inflation. Thus, the data trend will establish the price movements. We expect volatility in bullion to continue.

The recent Job data print released last week indicated that the labor market is softening, and it is expected that the Fed will eventually have to end the monetary tightening cycle after 18 months. This may not be so positive for the dollar index and support Gold prices.

Should one remain bullish on bullion and buy now, as we will be entering into a long festive season soon, and prices could go up?
The gold demand zone in the domestic market is seen around the Rs 58,000 level. Prices have been able to sustain above the mentioned level for the past six months, which indicates investors and traders are respecting the mentioned level. Investors should buy Gold around the Rs 58,000 level for the long term as we expect a rate cut in the first half of 2024, which will benefit the Bullion market. What should be the trading strategy in gold and silver futures next week?
On the weekly chart, prices closed above 9 EMA last week, and the momentum indicator RSI is also quoting above the reference line, which indicates that momentum is strong for prices. A strong support zone is seen around the Rs 57,500 level. As long as the mentioned level is intact, buy on dips is recommended in Gold for September.

Silver prices remained under pressure as the data point from China is not encouraging to boost investors’ sentiment. Strong support is seen around Rs 74,000 levels, a previous breakout zone. Buying is recommended around Rs 74,000 levels for the target of Rs 76,000 levels.

SGBs will open for subscription this month, and should investors consider buying it? What other avenues should one explore for investment in Gold?
SGB is a very beneficial product for investors with a long-term horizon. Maturity is for eight years, and premature withdrawal is allowed only after five years. So, short-term volatility will not deter the investors. Additionally, a 2.5 % interest rate per annum will be a cherry on top for the investors; this is an above-absolute appreciation in Gold prices. Gold has delivered a CAGR return of 11.3 per cent in the last 16 years, which is very lucrative considering its safe haven status.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)