Gold prices touched their new lifetime high of ₹61,490 per 10 gms on Multi Commodity Exchange (MCX) on May 4, 2023, Thursday, after US Fed raised its interest rate for the 10th consecutive time by 25 bps to a 16-year high of 5-5.25 percent. After the US Fed meeting, the gold price also touched a new peak of $2,081.80 per ounce in the international spot market.
Apart from the US Fed hike, which is keeping investors on the sidelines amid concerns regarding how long it will continue and its impact on the global economy; a weak rupee has also aided the gold prices.
Further, a fresh banking crisis in the US after Pacific Western Bank tumbled more than 35 percent and accepted that it was exploring strategic options, including a sale as well as a 55 percent decline in Western Alliance Bancorp, is also fuelling the demand for safe-haven gold. Even though the Fed has stated that it is monitoring the situation and the crisis is under control, investors remain cautious, leading to them investing more in other assets like gold.
Going ahead, experts believe that gold is expected to continue rising and provides a good opportunity for investors who want to avoid stock market volatility. They see demand for gold picking up in FY24.
Brokerage LKP Securities sees the yellow metal in the ₹66,000-68000 per 10 grams range in FY24, rising another 10-15 percent by FY24-end.
Jateen Trivedi, VP Research Analyst at LKP Securities, highlighted that gold prices in FY23 surged ₹8,000 in domestic markets from ₹52,000 to ₹60,000 per 10 grams, posting a 15 percent return, beating all other asset classes.
Going ahead, Trivedi believes gold still looks lucrative in terms of ROI (return on interest) from a safety perspective where the inflation still remains high globally and the interest cycle is yet to ease. This will also provide the push needed for gold to run and give a 10-15 percent return in FY24.
The prices can easily touch ₹66,000-68000 per 10 grams in the base case scenario by FY24-end. On the back of weak and uncertain performance in risky assets, it is strongly advised to remain invested in gold for further 10-15 percent returns on base case and 15-20 percent on bull case scenario, he advised.
Colin Shah, MD, Kama Jewelry, believes that the rally in the prices of precious metals is largely due to the developments in the US Fed meeting, the debt ceiling, and concerns around slowing economic growth affecting the dollar. The hiking of rates by the US Fed has put pressure on the USD, and indications of pausing and a likely mild recession in the later part of 2023 have provided support to gold prices, he further noted.
Further, the expert pointed out that the US government and the Treasury Department have raised their concerns about the deadlock and delay on the debt ceiling issue, and the slowing economic growth has created uncertainties, thereby pushing prices on the higher side.
As per Shah, the current setup has increased the appeal of safe haven investments like gold and silver. Gold prices are likely to hit $2090–2100/oz and ₹62,500–62,750/10 gms in the short to medium term, he predicted.
Manav Modi, Analyst, Commodity and Currencies at Motilal Oswal Financial Services, stated that MCX Gold has seen a great start to this year posting a YTD return of 10 percent, marking lifetime highs.
According to Modi, the metal has witnessed sharp volatility, however, there are a lot of factors supporting prices on the lower end - 1) Major central banks in the past one year are aggressively raising interest rates with an objective to calm the inflationary pressures, but now market participants are expecting a slowdown or even a pause in rate hike cycle. 2) US inflation has also fallen from its peak of ~9.1% reported last year to 5 percent; however, recent comments from Fed officials suggest that inflation is still far away from its 2 percent target.
Modi explained that the recent move in gold is primarily driven by the weakness in the dollar and ongoing concerns in the US banking sector. Fed in its last meeting suggested that it will continue to remain “Data-Dependent” and thus it will be important for market participants to keep an eye on some of the important economic numbers like retail sales, GDP, Inflation, and jobs data.
Meanwhile, ICICI Direct expects MCX Gold to take support near ₹58,600 and move back towards ₹61,000 levels as softening of key US economic numbers and fear of recession may lead expectations to resurface that US Federal Reserve will end its tightening campaign soon. However, demand for safe haven may increase on ongoing concern over debt ceiling and as investors fear that failure of the First Republic threatened to reignite recent banking crisis.
