Gold’s nemesis dollar, triggers Rs 2,800 fall from peak. Is there a silver lining?

As the festival of Ganesh Chaturthi will be celebrated on Tuesday, September 19 it will mark the beginning of a long festive season in India, gold could likely take a break from the ongoing bearish undertones in the medium term. The domestic prices are expected to remain steady on festive buying and a stronger dollar which will prop up the prices of dollar-priced commodities, says expert.

Globally, prices of gold have declined on dollar strength which has had a rub-off impact on the domestic prices as well. Over the last three months, the dollar index (DXY) has risen by over 3% during which time the MCX gold has declined by 4.61% or by nearly Rs 2,800.

Analyst Anuj Gupta, Head Commodity & Currency at HDFC Securities expects gold prices to remain range-bound in the near to medium term with the festive season lending support to the domestic gold prices. He does not see a sharp slide in the prices despite the dollar index potentially starting an uptick.

While the dollar index which may head to the 106 level will prevent any steep upside in the gold prices, a festival-led buying could support the prices, he opined. The dollar index will be taking cues from the Federal Reserve’s policy outcomes on September 20, he added.

Since August, Gold has been on a declining curve falling 0.33% or Rs 194 month-on-month in the previous month while by Rs 381 or 0.64% as of September 15. In June, MCX gold futures fell 3.30% or Rs 1,987. July was an aberration when the gold futures gained 2.33% or Rs 1,357.

Despite the slippages, the returns from gold are at 7.23% or Rs 3,976 per 10 grams in 2023. It was the best asset class in terms of one-year returns until April-May with 20% income on investments.

Praveen Singh, Associate Vice President, Fundamental Currencies and Commodities, Sharekhan called the upcoming Fed meet as an important event for the prospects of Gold. He said that the bulls are betting on the possibility of an end to the US Central Bank’s rate hike campaign, similar to the stance adopted by the European Central Bank.
In his view, the US bond yields and dollar trajectory remains critical to the prospects of gold. “The ten-year US yields are facing stiff resistance at 4.35% and if they rise beyond this level, there could be a swift rise in yields which could be bearish for the yellow metal,” he added.
Gold has struggled owing to the strength of the US economy even as the European and Chinese economy have remained under pressure.

The dollar index has witnessed a ninth consecutive weekly rise, buoyed by robust US economic data that paves the way for higher interest rates, Ravindra V.Rao, Vice President-Head Commodity Research at Kotak Securities. A dovish outcome in the recently concluded European Central Bank (ECB) monetary policy meeting, further boosted the dollar and consequently put downward pressure on gold prices, Rao said.

Rao sees Comex gold fluctuating between $1,929 and $1,970 per troy ounce until a decisive breakout happens above the $1,970 mark. Till such time, gold is anticipated to remain within this trading range, he added.

Analysts including Rao and Sharekhan’s Singh are of the view that Fed will not increase interest rates this time, it may retain the option to raise rates in the November/December FOMC meetings if inflation does not cool down.

Brokerage firm Emkay in a note said that the hawkish stance of the US Fed is a matter of concern for gold, which would have benefited from inflation and global economic woes. The US Fed’s fight against inflation has assumed greater importance after the Jackson Hole meet which will see gold trading in a narrow range in the near term, the report highlighted.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)