Ten consecutive rate hikes by the US Fed till date is a serious indication of how serious the central bank is on controlling inflation. But, the Fed’s target of 2% inflation will take much longer than its own estimates. Hence, the safe haven appeal for gold continues even now irrespective of the outcome of the inflation data, says Prathamesh Mallya, Deputy Vice President – Research, Non-Agro Commodities & Currency at Angel One
Now that the US Federal Reserve has hinted at a rate pause, what prospects do you see for gold?
Fed has raised interest rates for the past 10 times in a row taking the fed funds rate to a target range of 5%-5.25%. In normal circumstances, gold prices have an inverse relation with rising interest rates as gold is a non-interest bearing asset. In this case, gold prices have risen by around 12% in 2023 YTD as on May 10May, 2023 in the international as well as on the MCX.
The Fed might have hinted at a rate pause but the direction of the gold prices is a variable of more than one factor ranging from strong/weak dollar, rise/fall in bond yields, global macro economic situation, the policy stance of other central banks all of which are interrelated.
The prospects for gold remain bright as rising interest rates in the US has resulted in a banking crisis in the US and a probable recession which might lead the investors to further increase their investments in gold and further appreciation in gold prices.
What are the near term, medium term and long-term targets that you see in bullion? What should be the strategy for traders and investors?
In the near term, gold prices have risen fast, international as well as domestic, hence a small correction cannot be ruled out. Near Term correction towards Rs 59,500 cannot be ruled out.
Medium term – Correction towards Rs 59,500/10 gms can be used as buying opportunities for targets higher towards Rs.62,000/10 gms.
Longer Term – The bottom range for investor accumulation zone will be Rs 59,000-60,000/10 gms for target higher towards Rs 64,000 by the end of 2023. The banking situation remains a worry in the US, and April inflation data is due this week. Do you see the safe haven appeal continuing in gold?
Ten consecutive rate hikes by the US Fed till date is a serious indication of how serious the central bank is on controlling inflation. But, Fed’s target of 2% inflation will take much longer than its own estimates.
Hence, the safe haven appeal for gold continues even now irrespective of the outcome of the inflation data. The banking situation is although in a mess has been controlled by bigger banks taking over the defaulter banks. However, the cracks remain in the system and gold prices are a reaction of cracks in the economy and this will lead investors to maintain their interest in gold investments.
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