Major central banks – the United States Federal Reserve, the Bank of England, the European Central Bank and the Reserve Bank of India – together have raised interest rates by 125-300 basis points since the beginning of this year to control the escalation. inflation. Navneet Damani, Senior Vice President, Commodity Research, said, “Any change in interest rates has an immediate and adverse effect on the non-yielding asset i.e. gold.” Motilal Oswal Financial Services, Hence, the hike in interest rates by the central banks affected the gold prices sentiment.
With inflation still high, market watchers expect more interest rate hikes in the coming months. The higher interest rate scenario is expected to further dampen the appeal of gold in the future.
Last month, the US Federal Reserve raised interest rates by 75 basis points and indicated that more hikes were on the way. Higher US interest rates have strengthened the US dollar and bond yields. After the rate hike last month, the US dollar is hovering near a two-decade high and the US Treasury yield is trading near a 12-year peak. The US dollar has gained a lot since the Russian invasion of Ukraine in February this year. Since the yellow metal is dominated by the dollar, the price of gold goes down when the value of the US dollar rises.
Raj Deepak Singh, Analyst – Commodity, F&O, and Currency, ICICI Direct.
Will the falling rupee have a domestic effect? gold price,
Analysts said the fall in gold prices in the domestic market has not followed the depreciating trend of the Indian currency in the global market. The Indian rupee hit a new record low of 81.94 against the US dollar on September 28, 2022. Theoretically, a weaker rupee against the US dollar pushes the gold rate higher in the domestic market.
“The depreciation of the rupee ensures that the fall in gold prices in Indian markets is not severe as compared to international markets,” said Prathamesh Mallya, AVP-Research, Non-Agricultural Commodities and Currencies, Angel One Ltd.
“While the rupee has seen a depreciation of around 2.50 per cent, gold has also declined by over 3.50 per cent in rupee terms. The rupee’s outperformance against other major currencies put gold under pressure despite the (rupee) depreciation. Thus, we do not see any major movement of gold on account of depreciation of the rupee,” Singh said.
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Gold price future ahead of festive season
“As central banks across the world are raising interest rates, gold will underperform in this situation. Hence, a price correction from a fortnightly perspective seems to be on the cards. Gold price range on the multi-commodity exchange (mcx) can be around Rs 48,800 to Rs 50,600 for 10 grams this week,” said Prathmesh Mallya. “Those who are looking to buy gold during the festive season or Diwali can take advantage of the fall in prices in the recent trading sessions,” he added.
“Rising Treasury yields and a strong dollar may push gold further down before Diwali. Investors can wait for further downside in the range of Rs 48,500- 47,900 before Diwali as it may be favorable for investment purposes. MCX Trading Range But before Diwali, the October contract remains at Rs 50,300 from Rs 47,600.
Should you invest in gold before Diwali?
Gold prices (per 10 grams) have fallen from their peak of Rs 55,000 seen in March 2022 to around Rs 51,000 to Rs 51,500 this week. Hence, investors can take advantage of this low price ahead of the festive season. “The price of gold has seen a decline of 2 per cent in September, which is an attractive price for the market participants. There are many investment avenues for the market participants who want to invest in gold such as physical gold, sovereign gold bonds ( SGB), digital gold, or trading in the market depending on the risk profile of the investors,” Damani said.
Gold as an asset class is used to diversify one’s investment portfolio and acts as a hedge against long-term inflation. Many experts suggest against over-accumulation of gold and recommend limiting investments to 5-10 per cent of the overall portfolio. Since a fall in prices in the near future cannot be ruled out, it is better to buy gold in a staggered manner.
“One may hoard gold in the coming trading sessions to diversify their portfolio risk in anticipation of some correction in gold prices. Also, if prices see a downward trend, this can be used as a buying opportunity. and we believe there should be a good buying opportunity from Rs 49,300 to Rs 49,500. Expect the prices to touch Rs 50,500 in the next one month,” Raj Deepak Singh said.