The yellow metal has been on fire. Gold prices recently hit their all-time high of ₹56,245 per 10 grams on the MCX aided by the wedding season demand. In international markets as well, gold has crossed the important psychological mark of $1,900 per ounce.
The cues from the US Fed on the likely slowdown in rate tightening have helped gold prices rally from $1,700 levels. Globally, it is trading 5-6 percent lower than the all-time high level recorded in September 2022.
Reasons for the gold price rally
Gold prices rallied in recent times on the back of a slowdown in the pace of rate hikes, recession fears and institutional buying, noted Emkay Wealth management in a recent note.
A slowdown in the pace of rate hike: According to the brokerage, a major reason for the rally in the prices of gold has been the cues from the US Fed. After a relentless tightening on the rate as well as liquidity front, the central bank has indicated a slowdown in the pace of rate hikes as key economic indicators and inflation have stabilized, it said. It further added that gold is an international commodity, priced in US dollars, so a softness in the greenback lifts the prices of the yellow metal. The dollar index from its high of 114 level witnessed in September has softened to the 103 levels.
Recession fears: The recession fear in the West, geopolitical tensions, and unemployment levels have also played their part in the hardening of gold prices, stated the brokerage. Gold is considered a safe haven and often attracts investments in times of uncertainty and slowdown, recession in the economy, it added.
Institutional buying: Central banks bought a net 50 tonne of gold in November, up 47 percent MoM, which led to a rise in demand for the yellow metal, perhaps offset the selling by ETFs, noted the brokerage. A consistent rise in yields and expectations of Fed rate hikes will keep gold prices in focus, added the report. Policy changes, if any, will be at least two quarters away given the persistence of inflation as also target levels being quite far away from the current inflation reading, said Emkay. It further stated that the yellow metal is poised to move up with the right indications in interest rates, especially US rates.
Going ahead market experts believe that inflationary concerns and rising uncertainties are key ingredients for gold’s rally.
Navneet Damani, Senior VP – Commodity Research at Motilal Oswal Financial Services, said that aggressive rate hikes from major central bankers weighed on the metal but any sign of ease off in stance from the Fed will support the metal further. Geopolitical and Covid concerns continue to support safe-haven assets and central banks' gold buying spree is also boosting market sentiment, he said.
"Positive flows in ETF coupled with stagflation/recession scenario could benefit. A move in real rates lower will inversely support the metal price further," noted the market expert.
He expects Comex Gold to soar to $1990 & $2100 and ₹60,000-63,000 on MCX. Profit taking in Q1 towards Rs. 53,500 could be a long-term buying opportunity, Damani added.