Gold price dips ₹4000 from recent highs. Should you buy after Fed's rate hike?

Gold price today at Multi Commodity Exchange (MCX) is around ₹4000 lower from its recent high of ₹55,558 per 10 gm levels. MCX gold rate on Friday closed at ₹51,475 levels, ending 0.33 per cent lower from its Thursday close. Spot gold price too dipped 1.10 per cent and closed at $1921 per ounce levels. According to commodity market experts, recent 25 bps US Fed's interest rate hike and its hawkish stance to ramp interest rates during the course of 2022 to tamp down inflationary pressures is acting as a key headwind for the precious metal prices. However, they maintained that continued economic sanctions on Russia will accentuate the supply chain bottlenecks and lead to rise in inflation. So, gold buyers are advised to maintain 'buy on dips' as MCX gold price today has strong support at ₹48,800 levels whereas spot gold price today has support at $1850 per ounce levels. They said that gold price may witness some pressure in the near term but its outlook looks positive in medium to long term.

Speaking on the reasons for gold price dip; Sugandha Sachdeva, Vice President — Commodity & Currency Research at Religare Broking Ltd said, "Gold prices have erased much of the recent gains as the easing of the Russia-Ukraine crisis has dimmed the precious metal’s safe-haven appeal and led to the recent corrective wave in prices. Besides, the Fed has raised interest rates by 25 bps for the first time in three years bringing an end to its pandemic-era easy money policy. Fed’s aggressive plan to ramp interest rates during the course of 2022 to tamp down inflationary pressures is acting as a key headwind for prices. Higher interest rates are negative for gold as they tend to increase the opportunity cost of holding non-interest bearing gold."

Expecting inflation pressure to continue push gold prices despite US Fed's hawkish stance on interest rate hike, Sugandha Sachdeva of Religare Broking said, "Markets cannot ignore the fact that continued economic sanctions on Russia will accentuate the supply chain bottlenecks and lead to rising price pressures. To combat elevated inflation, central banks might raise interest rates too quickly, which can lead to a sagging economic growth scenario going forward and favor gold’s investment appeal. Expectations of strong central banks purchases as they seek to diversify their assets away from the US dollar amid continued uncertainty and inflows witnessed in global gold ETFs this year, also indicate positive sentiments for gold."

Expecting high volatility in gold prices in near term; Anuj Gupta, Vice President at IIFL Securities said, "Markets has already discounted 25 bps US Fed's interest rate hike and global inflation is expected to continue haunting central banks across the globe. So, one has to keep important levels while taking in position in gold price. As spot gold price is expected to dictate gold prices across world, one has to keep in mind that precious bullion has immediate support at $1890 and $1870 levels whereas it has strong support at $1850 per ounce levels. At MCX, gold price has immediate support at ₹50,800 to ₹50,000 per 10 gm levels whereas it has strong support zone at ₹48,500 to ₹48,800 levels. High risk traders can buy MCX gold in ₹50,000 to ₹50,800 range whereas positional investors can buy gold at MCX at around ₹50,000 and keep on accumulating till it is above ₹49,000 levels maintaining stop loss at ₹48,500 levels." He said that short term target for gold would be ₹52,800 whereas mid-term target will be ₹54,000 per 10 gm.

Asked about gold price outlook, Sugandha Sachdeva of Religare Broking said, "Gold prices might witness some pressure in the near-term, but still look positive from a medium to long term perspective. Though ₹56,000 per 10 gm or $2,075 per ounce remains a crucial hurdle for the precious metal as of now, we envisage gold to remain supported by the crucial level of ₹48,800 per 10gm or $1850 per ounce and garner buying interest."