Gold prices may rally above Rs 47,000 mark in a month. Here’s why

The decline in gold prices in recent weeks was due to a combination of factors ranging from increasing cases of Covid-19, Delta variant cases, a dovish tone by US Fed on tapering, lower bond yields in the US and good non-farm payrolls data.

Rising coronavirus cases across the United States and other countries fuelled fears of a pandemic resurgence, sending shockwaves through stock markets as the highly contagious Delta variant appeared to be taking hold. Fed Chair Jerome Powell, in its recent FOMC meeting concluded on July 30, said the US job market still had some ground to cover before the Fed pulls back support.

Moreover, uncertain global growth outlook and a reaffirmed commitment by central banks to continue easy money policies despite elevated inflation led to inflows into gold ETF’s. Global gold ETF flows were marginally positive in July, with inflows of 11.1 tonnes (US$669mn, +0.3 per cent AUM). Overall, global assets under management (AUM) stood at 3,636t (US$214bn), approximately 7 per cent below the October 2020 record tonnage high of 3,909t.

Employment prospects in the US have shown signs of improvement with recent non-farm payroll data released on 6th August 2021 by the US Labor Department showed US employers hired the most workers in nearly a year in July and continued to raise wages.

Nonfarm payrolls increased by 943,000 jobs last month, the largest gain since August 2020. Data for May and June were revised to show 119,000 more jobs created than previously reported. The unemployment rate dropped to a 16-month low of 5.4 per cent. That underscored remarks by Fed officials suggesting a sooner than anticipated roll-back of pandemic-era stimulus on the back of a solid labour market recovery.

The net longs in the recent weeks have seen consolidating at 1,06,662 contracts as on 3rd August 2021 when compared to 1,08,815 contracts as on 20th July 2021. The fall in net longs is an indication of fund managers’ sentiments dampening in the yellow metal, which can lead to further bearishness in the yellow metal in the weeks ahead.

Where is gold headed?

Contrasting factors are at play in the gold market. On one hand, the delta variant of Covid is creating a havoc and on the other side, the recovery in labor markets might lead the Fed to taper sooner than market expectations. Investors who are long on gold are now in a dilemma.

Whatever is the scenario, one has to accumulate gold at every dips, and the recent correction in gold prices have given favourable opportunities to investors who have missed the rally before. We suggest accumulating gold in Rs 45,500-46,000 zone for a target price of Rs 47,500 from a month’s perspective.

(Prathamesh Mallya is AVP – Research, Non-Agri Commodities and Currencies, Angel Broking Ltd. Views are his own)