Gold Expected to Remain Elevated

The average price of gold in Mumbai during FY 2022 was around Rs. 48000 let 10 gram which soared to around Rs. 55000 by the end of the year.

Currently gold prices are hovering around Rs. 63000 per 10 gm. Gold was seen touching new life highs due to the kn going geo political uncertainties.

In the first week of May gold jumped significantly. But the speed at which it rose , it was pulled down in double speed by Mid May.

Reasons for its volatility are many. let's begin with the gold price rise first

In 2022 Central Banks added 1136 tonnes of gold worth around $ 70 billion to their reserves. This addition has so far been the lagrest annual addition since 1967. The World Gold Council data revealed that Central Bank purchases , aided by rigourous retail investor buying and selling Exchange Traded Funds (ETF) outflows  , lifted annual gold demand to a 11 year hjgh.

Frther, the growing inflation triggering Central Banks to raise interest rates, tensions between Russia and Ukraine invoking fears of a full blown global war ,. uncertainty across stocks markets world wide and the recent collapse of the Silicon  Valle Bank, followed by stress sale of Credit Suisse to its rival UBS group, have contributed to rising gold prices.

Investors have reportedly been turning to gold and treasuries after the collapse of the Silicon Valley  Bank and Credit Suisse's implosion.

Now moving to this week's significant drop in the gold prices

Gold is down $230 to $1990 and that's the lowest level since May 1.

The $2070 zone of major resistance continues to hold and the $2000 level had held in two previous selloffs this month before breaking today. The gold market is soft today as the odds of a further fed hike next month creep up to 22% from 12% on strong retail sales, industrial production and home-builder sentiment.

Gold fell after robust US retail sales helped push the USD higher, weakening investor demand. This is despite an ongoing impasse on US debt ceiling negotiations. More hawkish comments from Fed officials also added to the headwinds for the precious metal.

We also expect a modest recovery of the dollar in the coming months. The pricing out of some Fed rate cuts and a modest dollar recovery will most likely result in lower gold prices but not in a change in trend. For 2024 we are optimistic about the outlook of gold prices. Monetary policy easing by the Fed, ECB and BoE will be a positive for gold prices in 2024 as the rate differences between USD/EUR/GBP versus gold (zero interest rate asset) narrow.

Basing the outlook on global financial instability , investor's and market players believe that gold will remain elevated in the coming years compared to pre COVID levels.

Weekly Gold Forecast

The week began on a silent note for precious metals. Gold was up +0.1% which probably reflects a lull in the haven demand as investors appear risk-on at the beginning of the week. It was strange to see that demand for the yellow metal wasn’t much despite of the on-going geopolitical tensions.

OVER THE WEEKEND, North Korean leader Kim Jong-un warned of a second “Korean War” as US- South Korea military exercises, viewed as “reckless behavior” by the North Korean leader. But reactions in the market were contradictory as the market layers stayed calm. Hence the news which could have had strongly pushed gold prices further proved to be non-influential for gold.

After a firm price movement on Monday, precious metals were more or less stable on Tuesday morns. Spot gold prices were down by 0.2% at $1287.90.

On Wednesday, Gold prices edged slightly higher after news that sales of new U.S. single-family homes fell by 9.4% in July to a seasonally adjusted and annualized pace of 571,000, which was below forecasts.

Consensus estimates compiled by various news organizations called for sales to be around 610,000 to 620,000. The Commerce Department revised sales for June upward to 630,000 from the originally reported 610,000.

Apart from the geo political tension, the focus now shifts on host of global economic data that will be released throughout the week