Gold’s correction extends to Rs 3000/10 gram in April. Has it made a near term top at life high?

The recent sharp correction in Gold prices, where the yellow metal has corrected by nearly Rs 3000 per 10 gram or 4% from the lifetime high is its biggest fall in nearly two years. Can we expect the trends to reverse or a top has been made? This is what multiple experts tell ETMakets as they spell out their trading strategy.

Notwithstanding the fall seen in yellow metal over the last two weeks, the rally in gold this year so far has been nothing short of spectacular. Gold futures on the MCX have climbed nearly 13% or Rs 8,000 per 10 gram on the year-to-date basis . The gains had been primarily on geopolitical tensions increasing the safe haven appeal of gold along with hopes of an early rate cut that triggered movement in the first fortnight of April. The month-to-date price rise still stands at 6%.

However the tables have turned with US inflation moderately rising in March and dashing hopes of a rate cut by June.

“Gold recorded its first weekly decline in six weeks and its biggest fall in two years as expectations of Fed rate cuts faded after the latest economic number from US, that put Fed policymakers into catch 22 situations, US Q1 GDP data sparked fears of stagflation as growth slowed, coming in weaker-than-expected at 1.6% from 3.4% while price index measures accelerated with the Core PCE Prices for Q1 surging to 3.7% from 2.0%, above the 3.4% forecast,” Jigar Pandit, Head Commodity & Currency Business, Sharekhan by BNP Paribas said.

It can be said that gold prices have formed a short-term top and we expect some more correction towards Rs 69,000-69,500 levels in the near-term and possibly some consolidation as well, Pranav Mer, Vice President, EBG – Commodity & Currency Research at JM Financial Services opines.Though he concedes that the underlying trend still remains positive till prices are holding above technical support at 68,000.Analyst Anuj Gupta echoed a similar sentiment saying that he sees some more corrections in gold prices in the upcoming month amid consolidation in the yellow metal. While the Head of Commodity & Currency at HDFC Securities sees this as “simply a temporary correction following a prolonged period of gains”, the underlying fundamentals and the current chart structure remain strong, he argues. Prior to the beginning of 2024, several analysts had pegged the target at Rs 68,500-69,000.

While April has been a month of positive returns over the last 5 years, 2024 has been exceptional. The five-year average for April stands at 2%.

In April 2021, gold yielded 4.70% returns while the next highest at 3.82% in April 2020. The world was grappling with Covid-19 in both these years and hence the appeal for gold grew significantly. In 2019, 2022 and 2023, the returns were 0.7%, 0.33% and 0.87%, respectively.

“The seasonality chart for the last five years shows that April and May saw positive gold returns of around 1.80%. Nonetheless, it appears that this year is exceptional but May is likely to be the consolidation phase for gold,” Gupta of HDFC Securities said.

Gold Price Outlook
Average returns in gold in May over the last five years stand at 1.62% with top returns of 4.46% and 3.89% in 2023 and 2022, respectively. In 2023 and 2019, gold’s returns in May were at 1.08% and 0.41% while negative 1.74% in 2022.

BNP Paribas’ Pandit maintains a long-term target of $2,700 for 2024 in the international market while 76,000 on the MCX by end of the year.

Gold’s last five year CAGR returns is at 13% and its long-term prospects remain strong despite the uptick, Gupta said, estimating a target of Rs 75,000 for this year. The demand from central banks, retail demand from China, geopolitical risk premiums and the likelihood of a global policy shift by Central Banks will keep the prices ticking-up, he added.

Mer of JM Financial sees price hitting the Rs 74,000- 74,500 mark by the end of the year.

May Strategy
Prices are likely to consolidate in May, all three said in a chorus. Mer sees the trading range between Rs 69,500 and Rs 72,500 level and recommended short-strangle strategy, with stop loss above Rs 72,500.

Investors should treat corrections as investment opportunities, Gupta suggested as he advised swing traders to wait for some more correction before entering long positions.

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