Calendar 2018 was a difficult one for gold.
The dollar appreciated as the Fed steadily hiked its rates while other major central banks kept their monetary policies accommodative. The US economy also saw good growth on the back of tax cuts doled out by the Trump administration. And US stock prices kept rising, at least until the start of October.
The price of gold went on a roller coaster ride for most of the year.
But as on 31st December 2018, it came to light that despite all these headwinds, gold outperformed most global assets.
A recent report from the World Gold Council, Outlook 2019: Economic trends and their impact on gold (January 2019) explores three key trends that are expected to influence the price performance of gold: financial market instability, monetary policy and the US dollar and structural economic reforms. After analysing various aspects of these factors, it concludes, “We believe that gold has an increasingly relevant role to play in investors' portfolios.”
The domestic demand for gold has always had its own dynamics, which make gold prices sometimes quite independent of international trends.
Predominantly, the demand and price of gold in India is impacted by the festival and harvest season (between Raksha Bandhan and Diwali) and the marriage season (which traditionally began in February but has now moved up to December), all the way till Akshaya Tritiya, in early May.
Another crucial annual determinant of gold prices is the extent of the monsoon and the resultant agricultural output and its impact on disposable income.
Last year was a rather bleak year for gold domestically too. The combination of a depreciating rupee and weak rural incomes resulted in lower imports of gold.
Come January 2019, and gold imports have witnessed a 64% surge, despite steep prices although in terms of volumes it fell from 60 tons in December to 46 tons.
With a near-normal monsoon and a spurt in expenditure as a run-up to elections in May 2019, disposable income is expected to remain buoyant. Other giveaways in the Vote on Account Budget announced on the 1st of February, such as the allocation of Rs 750 billion ($10.6 billion) per year to around 120 million farmers and a tax break that amounts to Rs 185 billion in the year to March 2020, could also fuel gold demand.
Source: Ticker plant, Ventura commodities
Recently, the MCX GOLD April month contract has broken the Symmetrical Triangle pattern on a monthly basis. Accordingly, the target price hovers around Rs 40000-42000 over the next one to two years. However, the price will face some immediate resistance at historical levels of Rs 35,074 (made on Sep, 2013) for the short and medium term period. Once it breaches this level, it could march towards 38000, after which it will trend upwards further towards 40000 to 42000 levels. On the downside, the price will receive immediate support at 31800 to 31500 for the short-term after which 30000 will act as a strong support level for the medium- term.
The RSI momentum indicator is showing strength on a monthly basis and currently trading above the positive zone. It has also broken the trend line resistance, which comes around 63 levels. Any further strength in RSI would support Gold prices on the higher side or upside in the coming months.
Note: Any change in Rupee appreciation/depreciation against Dollar may impact our price target in MCX Gold.
Disclaimer: Ventura Securities Ltd has taken due care and caution in compilation of data for its web blog. The information has been obtained from different
sources which it considers reliable. However, Ventura Securities Ltd does not guarantee the accuracy, adequacy or completeness of any information and is not
responsible for any errors or omissions or for the results obtained from the use of such information. Ventura Securities Ltd especially states that it has no
financial liability whatsoever to any user on account of the use of information provided on its web blog. The information provided herein is just for the knowledge
purpose and shouldn’t be construed as investment advice under any circumstances.
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