With US rate hikes looking doomed for now, the Federal Reserve is printing more money than ever to stimulate recovery from Covid-19. On top of that, President Joe Biden has a new $1.9 trillion coronavirus relief plan seeking Congressional approval, after the $4 trillion issued last year by the Trump administration.
Although the stimulus measures and other uncertainties are keeping market participants on the edge, we expect that would keep supporting precious metal prices. The bill is still under negotiation and like the previous bill this one has also seen few delays making the market participants anxious. President Biden has already announced few stimulus packages and is expected to announce more with Treasury Secretary Janet Yellen also in support of injecting more liquidity into the economy. This scenario is not very good for the economy as it will increase the debt and impact inflation, but will create a beneficial environment for the bullion market.
Investment in gold decreased for the week ended 14th Feb and holdings stood at 1,146 tonne, compared to holdings of about 1,156 tonne earlier. ETF holdings increased by about 827 tonne to 19,549 tonne.
Apart from retail sales and preliminary PMI data from major economies, market participants will also look for clues in the FOMC meeting minutes that will be released later this week. Presuming the second impeachment trial of former President Donald Trump is wrapped up, all eyes will be on the efforts to pass the Biden admin’s Covid-19 rescue package.
Traders are advised to maintain a cautious approach as gold is expected to trade with a sideways to lower bias. The 14-period RSI continued to sustain below the mid-level of 50 and MACD was also below the zero line which indicated weakness. The immediate strong resistance was at Rs 48,635 and the bias was likely to remain weak below the same. The recent low of Rs 46,600 will act as a key support level for gold. A break below the same will confirm weakness in price towards Rs 45,700 – 45,400 levels. Selling on the rise is recommended, but our bias will negate above resistance.
(The author is Vice President, Commodity Research, Motilal Oswal Financial Services. Views are his own)