Gold prices steady on US-debt ceiling talks: Should you buy, sell or hold?

 

Gold and silver prices edged higher on Wednesday, May 17. On the Multi Commodity Exchange (MCX), gold futures were trading at Rs 60,385 per 10 grams, after recording a rise of 0.23 percent. Silver futures were trading at Rs 73,675 per kg, after witnessing a dip of 0.12 percent.

Earlier this month, gold prices had reached a record high of Rs 62,020 per 10 grams.

In the global market, gold prices steadied below the $2,000-mark as investors fretted over the outcome from the US debt-limit negotiations, with a firmer dollar keeping prices in check. Spot gold ticked up 0.2 percent to $1,992.56 per ounce by 0254 GMT. US gold futures edged 0.1 percent higher to $1,995.10, according to news agency Reuters.

On Tuesday, gold prices fell by Rs 220 to Rs 60,807 per 10 gm in futures trade as speculators reduced their positions.

The trigger

According to Rahul Kalantri, VP Commodities at Mehta Equities Ltd, a downbeat Chinese economic data which increased fear of moderating consumer and industrial demand of precious metals from China impacted gold prices.

"The US debt ceiling uncertainty supporting the US dollar and US bond yields are also hurting the sentiment of precious metals. The Fed official’s comments on the monetary policy and further interest rate hikes are also hawkish and negative for precious metals," Kalantri said.

The US retail sales and core retail sales data for the month of April were also lower than expected but industrial production data was slightly better than expected.

Gold has been well supported on price dips below $2,000 and with the debt ceiling "process dragging-on, there is some pent-up frustration in the market which is adversely affecting sentiment", and that could bring safe-haven flows into gold, Tim Waterer, chief market analyst at KCM Trade was quoted as saying in Reuters report.

US President Joe Biden and top congressional Republican Kevin McCarthy edged closer to a deal to avoid a looming US debt default, as the threat of an economic nightmare prompted Biden to cut short an Asia trip this week.

The outlook

Mixed US economic data and strong dollar continue will weigh on precious metal prices.

According to Kalantri, gold has support at $1980-1965 per ounce while resistance is at $2005-2015 per ounce. Silver has support at $23.55-23.42 per ounce, while resistance is at $24.05-24.22 per ounce. In rupee terms ,gold has support at Rs 59,860-59,680 per 10 gm, while resistance is at Rs 60,420, 60,590 per 10 gm. Silver has support at Rs 72,020-71,550 per kg, while resistance is at Rs 73,150–73,620 per kg.

Investment in gold

Gold is considered a hedge against inflation and currently experts are recommending to add up to five to ten percent of total investment portfolio in gold, depending on the investment objective, risk profile and time horizon.

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