By Bhavik Patel
As investors continue to respond to Fitch Ratings’ statement downgrading the U.S. government’s long-term debt to ‘AA+’ from ‘AAA,’ rising risk aversion sentiment in the market isn’t doing much to help gold. It was the first downgrade by a major credit rating agency in more than a decade. Fitch cited “expected fiscal deterioration” of the U.S. government in the coming years, amid a growing government debt burden according to their report. Safe-haven flows have helped the U.S. dollar and bond yields, which has effectively restrained the rise in gold prices.
Now the major trigger would be Non-farm payrolls data which could give an idea how strong the labour market is. ADP’s national employment report surprised on the upside showing a much-larger-than-expected gain of 324,000 workers which helped USD. Strong labour market implies that the Fed will stick to a high interest rate scenario.
Technical Outlook
In MCX, gold has been stuck in the range of Rs 58,900-59,800 for the past 12 trading sessions. Tonight’s US Jobs data might give us clear direction but even if Jobs data comes higher than expected, looking at gold’s resilience against rising US Treasury yields and dollar, we believe the correction would be short lived and we would like to recommend long at dips around the lower support zone of Rs 58,800-58,500 with expected target of Rs 59,900-60,000 and stoploss of Rs 58,200.
(Bhavik Patelis a commodity and currency analyst at Tradebull Securities. Views expressed are the author’s own. Please consult yourfinancialadvisor before investing.)