Gold has been undergoing a correction from the $3035 level, aligning with key technical
breakdowns and fundamental influences. At the same time, USDINR is experiencing rupee
appreciation, an unusual occurrence given that the US Dollar Index (DXY) remains stable
around 104. This report analyzes the factors driving these movements, including the technical
structure of Gold, the relationship between USDINR and MCX Gold, profit booking trends,
and open interest changes.]
Technical Breakdown of Gold (COMEX)
A key technical pattern observed in Gold’s 4-hour chart is a Head and Shoulders (H&S) formation, which has now confirmed a breakdown:
- The left shoulder, head, and right shoulder formed near resistance levels.
- A neckline break around $3020 confirms the bearish trend.
- This signals a potential further decline toward the next demand zone below $3000.
The price correction from $3035 is, therefore, not random but driven by technical patterns, which traders widely follow for decision-making.
USDINR and MCX Gold: Direct Correlation
USDINR and MCX Gold share a direct proportional relationship because:
- MCX Gold is denominated in INR – when INR strengthens, MCX Gold becomes cheaper, leading to lower prices.
- A strong INR reduces import costs for Gold, further decreasing local market demand.
Currently, USDINR is depreciating as the rupee strengthens. This makes MCX Gold less expensive, adding to its downward pressure, even though COMEX Gold prices are relatively stable in dollar terms.
Rare Scenario: USD Strength and INR Appreciation Together
A highly unusual market condition is playing out:
- DXY remains around 104, indicating that the USD is stable globally.
- INR is appreciating, which typically happens when capital inflows increase or the Reserve Bank of India (RBI) intervenes.
- This divergence suggests either strong foreign investments or central bank activity supporting the rupee.
Normally, a strong USD would lead to a weaker INR, but here we are seeing both USD stability and INR strength, which is likely causing confusion among market participants.
Profit Booking and Open Interest (OI) Change (-10% in last 2 days)
A notable shift in sentiment is visible in Gold futures:
- Open Interest (OI) has dropped by 10%, which indicates traders unwinding positions.
- A declining OI alongside a price drop signals profit booking by institutional traders rather than fresh short positions.
- This suggests that traders who had been long on Gold are now exiting positions, reducing upward momentum and accelerating the correction.
Conclusion and Market Implications
Gold’s correction is a mix of technical breakdowns, INR strength, profit booking, and unusual USD-INR dynamics:
- Gold has triggered a Head & Shoulders breakdown, confirming downside pressure.
- USDINR’s decline (INR appreciation) is making MCX Gold cheaper, leading to less local demand.
- DXY’s stability at 104, combined with INR strength, is a rare occurrence, possibly due to capital inflows.
- Open Interest declining by 10% signals profit booking, rather than new shorts, confirming reduced bullish sentiment.
Outlook
- If INR continues appreciating, MCX Gold could see further downside.
- The next major support for COMEX Gold lies below $3000.
- A retest of the breakdown zone ($3020-$3035) is possible, but further selling pressure is likely unless there is a reversal signal.
Despite the ongoing correction, the broader trend in Gold remains bullish. Small corrections are necessary for healthier breakouts, allowing the market to build momentum for the next leg higher. While short-term technical breakdowns indicate pressure, these dips often serve as accumulation zones before a renewed uptrend.
Traders should monitor USDINR movements, COMEX Gold price action, and further changes in Open Interest for signs of trend continuation or reversal.
Until then, Happy Trading!
Commodity Samachar Securities
We Decode the Language of the Markets
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