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Gold prices surge amid US Fed’s dovish stance, experts predict further rise
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Summary
The gold price rise is propelled by signals from the Federal Reserve indicating a predisposition towards potential rate cuts and anticipation surrounding the US non-farm payroll data.
Gold prices surged for the second consecutive day on Thursday (May 2). The precious metal’s value strengthened by 0.3% to $2,325.02 per ounce in the global market, following a 1% climb in the preceding session, according to a Reuters report.
Concurrently, US gold futures rose by 1% to $2,334.40 per ounce.
The price rally underscores a broader trend, with gold experiencing 20% growth over the past year.
Back home, the price of gold is ₹ 65,540 per 10 grams for 22-karat gold and ₹71,500 per 10 grams for 24 karat gold (also called 999 gold).
The trigger
The gold price rise is propelled by signals from the Federal Reserve indicating a predisposition towards potential rate cuts and anticipation surrounding the US non-farm payroll data.
The Federal Reserve’s decision to maintain unchanged interest rates was accompanied by a policy statement retaining key economic assessments and guidance.
Federal Reserve Chair Jerome Powell articulated a cautious stance and emphasised that future rate adjustments would hinge upon evolving economic indicators.
Matt Simpson, senior analyst at City Index, remarked on the significance of Powell’s remarks, noting that the Fed’s commitment to refraining from further rate hikes provided impetus for gold’s ascent above $2,300 per ounce.
What lies ahead?
The trajectory of gold prices is expected to be influenced by the forthcoming US non-farm payrolls report, scheduled for release on Friday.
Analysts anticipate that a softer-than-expected report could further support gold prices, consolidating its position above the $2,000 per ounce threshold for the remainder of the year and potentially breaching the $2,500 mark per ounce.
Rahul Kalantri, VP of Commodities at Mehta Equities, suggested that gold will find support levels at $2,305-2,288 per ounce with resistance at $2,335-2,351 per ounce.
“In India, gold sees support at ₹70,420 per 10 grams and ₹70,150 per 10 grams, with resistance at ₹70,780 per 10 grams and ₹71,920 per 10 grams,” Kalantri said.
Investment considerations
In terms of investment, while gold’s short-term returns might allure some investors, it’s crucial to acknowledge its historical performance relative to other asset classes.
According to Value Research, gold’s annual returns typically fall within the range of 7-8%.
This is lower than equities, which have delivered around 14% returns over the last decade.
However, for investors inclined towards diversification, Value Research noted that sovereign gold bonds (SGBs) present an alternative avenue worth exploring.
While SGB and physical gold prices grow at the same pace, the former offers an additional interest of 2.5% each year.
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