Gold rate rebounds after weak US GDP data. Right time to buy now?

According to commodity market experts, US Fed changing its stance on interest rate hike from hawkish to mild hawkish and weak US GDP data in second successive quarter has pulled down dollar index from its 20-year high of $109.30 levels. Bond yield has also come down after the ease in dollar index and mild hawkish tone by the US central bank. So, once again investors have started looking at gold as ‘safe haven.’ They said that overall trend for the yellow metal is expected to remain positive and in short term, gold prices may go up to $1800 levels in spot market whereas it is expected to go up to ₹52,300 levels on MCX.

US Fed’s mild hawkish stance on interest rate hike

Speaking on the reasons for gold price rebound, Sugandha Sachdeva, Vice President — Commodity & Currency Research at Religare Broking said, “Gold prices zoomed higher by around 2.39% for the week, while carrying forward the positive momentum of the prior week driven by a mildly hawkish tone of the US Fed on rate hikes. In a much-awaited event, the US central bank delivered three-quarters of a percentage point rate hike for the second month in a row as widely anticipated, in its battle against scorching inflation. However, the Fed acknowledged softening economic activity which soothed concerns about the rapid rate hike path ahead and prompted safe-haven buying in gold. Besides, the dollar index was seen nursing losses for the second week in a row, which underpinned gold prices.”

US GDP data

The Religare analyst went on to add that the precious metal’s haven allure further got a boost as the US GDP probably contracted by 0.9 per cent annualized rate in the second quarter as against expectations of a 0.5 per cent rise, according to the first of three estimates. This follows a contraction at the pace of 1.6 per cent in the first quarter. With growth momentum waning amid rising price pressures and tightening of financial conditions, there are speculations that the Fed might step back from super-sized rate increases as previously expected, to avoid a hard landing for the economy.

Slide in dollar index

Highlighting the reason for gold attracting bulls’ interest, Anuj Gupta, Vice President — Research at IIFL Securities said, “Change in tone of US Fed on interest rate and contraction in US GDP for second straight quarter has triggered profit-booking in the currency markets, especially in the dollar positions. This led to fall in dollar index from 20-year high of 109.30 levels to below 106 mark within a fortnight. We are expecting dollar index to slide below 105 levels in short term.” He said that fear of US recession and Indian rupee’s deviation against the US dollar is expected to dominate gold price in short term.

Anuj Gupta of IIFL Securities said that fall in dollar price is expected to fuel the gold prices further and in spot market it may go up to around $1800 per ounce levels whereas MCX gold price is expected to test ₹52,000 mark in near term.

Gold price outlook

Speaking on the gold price outlook for near term, Sugandha Sachdeva of Religare Broking said, “As for the price setup, gold has managed to find a strong floor at the level of $1680 per ounce mark and garnered strong buying interest. Going ahead, the outlook remains positive for the near-term, and we anticipate further upside in the precious metal towards the level of $1785 per ounce initially and then $1810 per ounce mark, while at the domestic markets, the precious metal can forge ahead towards ₹52,300 to ₹52,700 per 10 gm mark in coming days, with immediate support seen at ₹50,200 per 10 gm, while key cushion area will reside at the ₹48,800 per 10 gm mark.”

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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