India's love for Gold is no hidden secret. This multiplies especially during the festivals of Diwali and Dhanteras. But as the rise in gold demand jumps, so does it price.
However, according to brokerage house Emkay Wealth Management, gold is likely to trade range-bound in the short-term, which is good news for all gold lovers!
As per the brokerage, the strengthening of the dollar as well as rate hikes will limit the rally in gold prices despite high inflation and uncertainties worldwide. It further noted that weakness in gold is likely to continue till there is clarity on global economic growth and rate hikes
The current setup
Gold rates fell sharply in Indian markets on Monday, tracking a weak trend in international rates. On MCX, gold fell 1.7 percent or around ₹950 per 10 gram to ₹51,037 per 10 gram, its biggest single-day fall in about 3 months.
This decline was on the back of the US dollar continuing to make new highs as the US Fed announced one of the most aggressive rate-hiking campaigns in decades. Overall, also, gold prices have moved lower over the course of 2022, as many central banks across the globe have embarked on rate-hiking regimes in order to get inflation under control.
Despite the fact that India is witnessing high inflation, and economic uncertainties around the globe, gold has been largely trading range-bound, the trading range has been $1630 and $1740 for the past 1 month, noted the brokerage. It is currently trading around $1690-1700/oz and is widely expected that in the near future gold may remain in narrow ranges, predicted Emkay.
Hedge against inflation?
"The only factor which gives some potential for strength to gold at this point in time is the occasional talk of gold as a hedge against inflation and uncertainties. But this property of gold as an asset class has been undermined to a large extent as evidenced by the fact that despite inflation has been very high in the US, Europe, and other territories, gold has not picked up," explained the brokerage.
Why are gold prices under pressure?
As per the brokerage, the rate hike by the US Fed has led to the US Dollar strengthening against major currencies of the world. A firm dollar makes buying gold much more expensive thereby reducing the investment appetite, it said.
The rise in the US interest rates and the likelihood of the hawkish stance of the Fed converting itself into rate hikes which may go well into the next year as well may keep gold prices at the lower end of the range, further forecasted the brokerage.
The current spell of gold weakness may continue till there is more concrete information on the state of the economy in the major economies, especially against the background of an aggressive central bank trade-off unfavourable to growth and promoting stability, it added.