Gold prices have given multiple break outs on the charts and is technically poised to give handsome returns. It will continue the same performance in second half of 2016 and we may see more funds flowing towards gold which is considered as safe haven for investors.
Gold on monthly chart has breached out of a falling wedge pattern which is considered as a bullish reversal pattern. We are expecting prices to retrace towards technical target of $1,475. On weekly chart a smooth bottom formation is seen in and “almost” inverted head and formation breakout is seen for which neckline comes at $1,341 and a correction there can get prices to levels of $1,341. We look at it as a buying opportunity for investors.
For Aug Series, MCX Gold is bullish and a correction to levels of Rs 31400 – 31200 per 10 gram will be healthy in nature and on charts it will be seen as an opportunity to enter for next round of bullish rally. Gold August has given a break out from consolidation channel, which is technically a bullish flag pattern, for which target comes at previous highs of Rs 35,000 per 10 gram. The correction towards Rs 31,400 per 10 gram will retest the channel and a buying can be seen at those level. Buy on dips strategy with a trend following system can be used in Gold MCX.
Silver in past few trading sessions has given an exponential return beating the yellow metal. MCX Silver September has given a break out from resistance, a downward sloping trendline drawn from highs of Rs 73,600 per kg. The overall break out of downward channel comes at 61.8 per cent which is at Rs 58,400 per kg in a longer term time horizon. In short term, prices may face resistance at 38.2 per cent which is Rs 48,400 per kg and any profit booking may drag prices to support zones of Rs 45,100-45,500 per kg. These levels will act as support in short term and prices may bounce back as the momentum is in primarily bullish momentum. If silver breaches the Rs 48,400 level then next resistance comes at Rs 53,400 which is a 50 per cent fall from previous high.
Fundamentally, we have ongoing economic risk factors such as European banking system and the sovereign debt levels which are at alarming levels and are spillovers of 2008 crisis. These catalysts are in turn leading inflows into precious metals. Also, ongoing concerns over how Brexit effects pan out for European region which is still not measurable in terms of trade and capital outflow. With that we already have US elections set in later part of the year. All these factors provide ample uncertainty for investors and funds pulling out money and investing in safe haven assets. We are going to see continuous rise in inflow in precious metals that can be commodity, ETF or related stocks.
The world’s Largest gold backed ETF, SPDR Gold Trust ETF , is at 130+ and has breached two years high. The holdings in trust has seen a rise and is at 982.44 tonnes while Ishares Silver trust which represents the industrial metal has seen higher gains compared to gold with returns of over 30 per cent. In coming season we are expecting to see increase in demand as well.
(The author is CEO, Epic Research)
