Will gold’s lustre hold up? Here’s what experts have to say

"Prices are also correcting in physical market as there is no demand. We are advising people to wait for lower levels to buy," said Anuj Gupta, IIFL

Will gold's lustre hold up? Here's what experts have to say
Gold has been under pressure of late due to the strengthening US Dollar and the Federal Reserve’s hawkish shift in tone.

Gold prices inched higher today after seeing a sharp fall of 5% last week as US Treasury yields retreated, boosting the allure of the metal.

On the Multi-Commodity Exchange (MCX), August gold contracts were trading higher by 0.4% at Rs 46,943 for 10 grams in the afternoon trade.

Gold has been under pressure of late due to the strengthening US Dollar and the Federal Reserve’s hawkish shift in tone.

The Federal Reserve signalled it would be considering whether to taper its asset purchase program meeting by meeting and brought forward projections for the first post-pandemic interest rate hikes into 2023.

Investors priced in a sooner-than-expected tapering of extraordinary US monetary stimulus and the stronger greenback dampened foreign demand for dollar-denominated gold. This led gold to lose more than 5% on a weekly basis for the first time in a year.

Gold prices movement in past one year

Gold prices began rising after the pandemic hit India for the first time last year leading to a nationwide lockdown. Amid all the uncertainties, Gold rose to an all time high of Rs 56,200 in August 2020 and ended the year 2020 with 25% returns.

Vaccine rollouts and strong optimism over economic recovery in 2021 led to some liquidation in the yellow metal with risk-on sentiments. Gold plunged 21% (Rs 12,500) from all-time high levels in March 2021.

However, with Covid cases rising again, gold prices covered the shorts and began the second leg of rally leading Gold to over Rs 49,000 for 10 gram yet again in May 2021.

Volatility soon took over with strong dollar and news around US Fed’s indications of higher interest rates creating some selling pressure on the yellow metal.

Gold rates in India have slumped about Rs 2,700 so far in June and are hovering near Rs 46,000.

Triggers

On June 22, gold in US dollar terms will be in focus as Fed Chair Jerome Powell testifies in front of the U.S. House of Representatives on the Federal Reserve’s response to the coronavirus pandemic.

Gold will be back in the spotlight with the May US Markit Manufacturing data slated to be announced.

On June 24, gold in Euro terms could see increased interest with the release of the June German Ifo business climate survey. Additionally, gold could experience some volatility around the Bank of England rate decision. 

The next day, with the July German consumer confidence report, there could be an impact on gold prices.

In India, the major triggers from gold will flow in August with the RBI bi-monthly policy report on any indications on rate hikes.

Soon after, the festive season is likely to usher in hopes of higher demand of gold along with the wedding season. However any developments on Covid and the third wave will be paramount to track.

What should you watch out for?

In India, the prices of gold and silver depend on various factors. One of the key components in deciding the gold rates is the prices on the international market. Several factors such as the value of the rupee against the dollar and global demand for the metal also play a crucial role in deciding the rates of gold and silver in India.

“Last week we gold prices corrected sharply on the back of optimistic Fed view on US economy and expectation of hike interest rates twice by year 2023. This impacted the dollar and bond yield increased sharply. Optimism on US economy fade out safe haven demand of Gold and gold trading on seven week low level,” said Anuj Gupta, Vice- President (VP), Commodity and Currency Research at IIFL.

He said short-term traders can go for sell in gold at 47,200 with the stop-loss of 47,550 for the target of 46,500 levels.

“Prices are also correcting in physical market as there is no marriage and festival demand. We are advising people to wait for lower levels to buy,” he added.

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