PremiumNEW DELHI: Gold prices have recovered from their lows over the last two months due to concerns over rising inflation, an easing of bond yields and a weaker dollar. Expectations of higher inflation and central banks' tapering are the key triggers that will drive gold prices going forward, with the yellow metal likely to continue to attract investments as a hedge against other asset classes, Axis Securities Ltd said in a note.
Since the start of the year, investor sentiment has improved with market participants betting on riskier assets such as equities. Improved sentiment was led by rising optimism which came in the wake of vaccine development and faster-than-expected economic recovery in global markets. All these factors kept gold prices under pressure through most of 2021 so far, making it the biggest underperformer for the first five months of the calendar year.
Besides inflationary concerns, recovery in gold was supported by a sharp correction in cryptocurrencies during May.
As a result, gold prices have been recovered from their lows by 9% and 12% in rupee, dollar terms, respectively, in the last two months.
“The market will wait for the commentary from the US Fed on the assessment of the economy and any key change in the tone will be a short-term negative for gold. However, gold will continue to attract investments for hedging risk against other asset classes. We continue our Neutral stance on Gold and recommend a buy-on-dips Strategy," Axis Securities said in a recent note.
The dollar index and bond yields got a boost over the last few days on account of robust economic data. Now, it is being speculated that the Fed may think about slowing the pace of its asset purchases.
