Fireworks missing in gold; global inflation bodes well: Sugandha Sachdeva

Gold prices have been on the rise recently, hovering around Rs 51,000 mark. The yellow metal has gained value, rebounding after six months of consecutive decline. For the last six months prices were on a declining spree.

It was the rising interest rates which was actually driving the dollar index on the higher trajectory and kind of pressurising gold prices for a very long time, said Sugandha Sachdeva, Vice President – Commodity and Currency Research,

Broking.

“Overall the ride has been quite patchy this year, but now we have seen a strong resurgence in gold prices,” said the market expert in an interview with ET Now.

She pointed out factors like worries over global recession increased the demand for the safe haven, gold, along with a cooled down US dollar index, which diverted some inflow to the gold. Buying of gold by the central bank is another reason behind the rise.

“It is the 12 consecutive year wherein we have central banks buying gold. It basically boils down to the fact that premiums have been rising in China and Turkey and they have not actually supplied gold to India,” she said.

“Overall, if we see towards the last quarter of this year I think that demand for gold in India is also likely to rise. The demand for gold is likely to remain healthy and the trend for gold imports in India is likely to be around 700 to 800 tonnes,” she added.

The trajectory for gold prices were earlier supported by the level of $1,680 per ounce for almost two years. This year prices briefly reached that level but managed to hold support around this vicinity itself and they have managed to show a strong rebound, she said.

Sachdeva believes that the trajectory is going to be positive with the kind of resurgence seen in gold prices and the concerns about the slowdown.

The expert believes that inflation is a concern across the globe and the developed world’s inflation is hovering around multi-decade high levels. The latest boil in the crude oil prices bode well for the gold amid the inflation narrative.

“The initial resistance for prices has seen that $1,780 per ounce and if breached, we are likely to head high towards $1,850 per ounce in coming months even though the rising interest rate environment is still suppressing gold prices,” she said.

Sachdeva said that the gold is up 8 per cent as the trend remains positive but the fireworks are missing as the trend it’s not very bullish. “We are very positive in the near term outlook,” she said.

“I am not saying that we can see prices heading higher towards Rs 56,000, which was close to the record highs for gold, but the demand is likely to pick up ahead of this festive season,” she added.

A lot of Indians have affinity for gold, a time tested asset rather than a timeless asset. It has actually provided a lot of diversification to portfolios. Sachdeva believes that the inflation pressure in India is likely to drive the demand for gold.

“We also have to look at the concerns about slowdown, coupled with inflation and both of them are very positive for gold prices, ” Sachdeva said.

“If I talk about empirical data if we look at last 30 years for the domestic gold scenario we have seen that gold prices have given annualised returns of around 10 per cent while the CPI Index has hovered around 76 per cent so we have always seen that gold prices have managed to surpass the cost of living index this is one major reason why Indians would again be actually flocking on to gold,” she said.

For the last five months, gold prices have been hovering in a range of around Rs 49,000 on the downside and Rs 52,700 mark on the higher side which is acting as a ceiling for prices, she said.

“Once we reach this level and in the light of lingering geopolitical concerns, inflation on the higher trajectory, slowdown concerns I think we can very well surpass this level and once we see that prices surpass this level we are certainly likely to see some fireworks also coming out,” she concluded.


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