In fact, in the quarter-ending September, emerging economy central banks added almost 400 tonnes gold in their portfolio, causing quite a stir, as investors and market observers want to know more about such large purchases at a time of global geopolitical uncertainty. We believe geopolitical tension and fear of slowdown in global economy may shift demand towards gold as safe haven in the coming year as well.

As US Fed Chair Jerome Powell declared last week, the US central bank would continue to hike interest rates in order to combat inflation in 2019. But they may increase interest rates with less hawkish trend as this may also be supportive for the gold. Weakness in dollar index and US bond yield also attract the investors towards gold as a safe haven asset class.

On domestic front, the demand outlook is robust. It is a well-known fact that India is the second-largest consumer of gold in the world, behind China, and is a large importer of the yellow metal to fulfill domestic demands. In an effort to reduce trade deficit and relieve pressure on Indian rupee, India increased the import tax on gold in July from 7.5% to 12.5%. However, this didn’t derail the demand significantly and according to the World Gold Council, India’s demand for gold instead increased 14% from a year ago to 191.7 tonnes in the quarter ending in September. We see sustained demand to continue in 2023.

Gold Technical Outlook

The yellow metal prices formed a shooting star candlestick pattern on the weekly chart last week, indicating a pause or reversal in the ongoing bullish trend. However, long-term trend of gold is positive.

The recent rally and recovery from the lower levels may indicate the fresh buying activity emerging in the trend. Bullish candle stick pattern followed by higher top higher bottom formation suggested the optimism in the gold prices. To resume a bullish journey, prices need to surpass 55,600 with full conviction else profit booking decline can’t be ruled out for aforesaid support levels. As per the current chart structure and technical indicators, we are expecting that the rally in gold may continue and buy on dips is recommending for the gold.

Strong Support Observed at 52,000 levels and then 48,000 levels. Resistance is at 56,000 levels and then 58,500 levels. We are expecting gold may test 56,000 to 58,000 levels and in international market it may test $1900 to $1950 levels very soon.

The author, Anuj Gupta is Vice President – Research, IIFL Securities

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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