Gold could Hit 40,000 Sooner Than Expected

Aug 16, 2019

Apurva Sheth, Editor,Profit Hunter Pro

Last week I wrote about gold and how it is firmly placed to follow Sensex to 40,000.

I explained how the domestic prices of gold are dependent on two factors.

  1. International Prices of Gold

    The international gold which is traded in dollars is far below its all-time high of US$ 1,920/ounce. It has broken out of a long-term consolidation and heading upwards.
  2. Exchange Rate

    We import most of our gold requirements and make payments in dollar. If dollar strengthens against the rupee then we pay a higher price for the imported gold. Rupee is in a long-term downtrend compared to dollar. This means importing gold will always be expensive for us.

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Now let's look at price chart of both these factors.

 

I showed the above chart of international gold to my Profit Hunter Pro readers when I recommended adding some glitter to their portfolio in October 2018. Gold had just managed to break out of an ascending triangle consolidation.

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Other factors like the US-China trade war, geo-political tensions between Iran and the US also supported the price rise.

Fortunately, we haven't seen a lower price in gold since then. It has been in a solid uptrend. It has even broke above the 5-year long resistance line which is at US$ 1,350. This level will now act as a major support.

Apart from this trade war between US and China is escalating. Central banks across the globe are anticipating a slowdown in global economy. The Middle-East remains a breeding ground for geo political tensions. US has a new tiff with Iran. China and Russia are increasing their gold reserves.

The international gold price is unlikely to fall sharply with all these factors at play.

Investors and traders in India have one more crucial factor to look out for now - USDINR.

 

I showed this chart of USDINR to my Profit Hunter Pro readers. The USDINR was trading around 73 back in October 2018. It fell substantially from the highs and found support around 68 which acted as a resistance earlier.

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Domestic gold prices moved up even when rupee strengthened against the dollar. However, this has changed now.

Rupee nosedived more than 2% against the US dollar and breached the 70-mark on August 5. The fall in rupee's value marked the biggest single-day drop in the last six years.

The depreciation came on the back of escalation of trade wars and a sharp devaluation in yuan and uncertainty over the Kashmir issue. Rupee is trending lower since then and could weaken further against the dollar.

FIIs are on a selling spree in equities since May 2019. They are net sellers worth more than Rs 280 billion. This is likely to keep rupee under pressure for now.

Now think of domestic gold prices as a chartered plane flying on two engines. International gold price is one and exchange rate is another.

So far it was running only on one engine. But now the engine of exchange rates has also fired up. If both the engines are left on, then the flight of domestic gold prices will reach its destination of 40,000 much faster.

Hold on tight! This is the best time to be invested in gold.

Warm regards,

Apurva Sheth
Apurva Sheth
Editor and Research Analyst, Profit Hunter Pro

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