Gold is getting its glitter back as the price of yellow metal is surging closer to record highs. Gold has been trading in a range of $1800–1880 for last one month. The cues from the US Fed on likely slowdown in rate tightening has helped gold prices rally from levels of $1680-1730 to $1850-1880 currently. In India, the prices are trading near an all-time high aided by the marriage season demand. Globally, it is trading 5-6 per cent lower than the all-time high level recorded in September 2022.
A major reason for the rally in the prices of gold has been the cues from the US Federal Reserve. 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 stabilised, brokerage firm Emkay said.
A slower rate hike of 25 basis points (Bps) going forward has softened the US Dollar, leading to a rally in gold prices. Gold is an international commodity, priced in US Dollars – so a softness in the greenback lifts the prices of the yellow metal. The US Dollar index from its high of 114 level witnessed in September has softened to 103 levels, Emkay said.
The recession fear in the West, geopolitical tensions, and unemployment levels have also played their part in the hardening of gold prices as it is considered a safe haven and often attracts investments in times of uncertainty and slowdown, Emkay added.
Notably, central banks bought a net 50 tonnes of gold in November, up 47 per cent MoM. This led to a rise in demand for the yellow metal, perhaps this offset the selling by ETFs. A consistent rise in yields and expectations of Fed rate hikes will keep gold prices in focus. 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. Gold is poised to move up with the right indications in interest rates, especially US rates, Emkay concluded.
