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Gold prices may continue to remain rangebound for few months, says report

Going forward, gold looks better placed fundamentally given the fact that sustained supply shock inflation will act as a tailwind to gold prices. (Photo: iStock)Premium
Going forward, gold looks better placed fundamentally given the fact that sustained supply shock inflation will act as a tailwind to gold prices. (Photo: iStock)

  • International gold prices finished May at $1,837, falling 3% month-on-month, as the geopolitical premium from the Russia-Ukraine war continued to wane and the Federal Reserve’s monetary tightening gathered pace

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NEW DELHI: Gold prices will likely remain rangebound for the next few months as investors gauge the impact of policy on economic growth, according to a report by Quantum Asset Management Company (AMC).

The report said if inflation persists or becomes entrenched, investors can see a repricing of inflation expectations going forward which could again bring down yields on the Treasury Inflation-Protected Securities (TIPS), giving gold a push higher.

“With the Reserve Bank of India again expected to increase rates in June and beyond, volatility in stock and debt markets will persist. Therefore, allocating some part of the portfolio to gold can help investors tide through the macroeconomic and geopolitical uncertainties," said Chirag Mehta, chief investment officer and Ghazal Jain, fund manager-alternative investment at Quantum AMC.

International gold prices finished May at $1,837, falling 3% month-on-month, as the geopolitical premium from the Russia-Ukraine war continued to wane and the Federal Reserve’s monetary tightening gathered pace. Domestic prices were down 2%, closing the month at around 50,847.

In domestic markets, gold has given a return of 6% YTD compared to Sensex which has yielded a negative 5% return. The positive return on gold in the domestic market is also a result of depreciation in the Indian rupee against the US dollar. The rupee has depreciated by around 4% YTD.

This puts gold in a sweet spot, as per Quantum AMC.

“Going forward, gold looks better placed fundamentally given the fact that sustained supply shock inflation will act as a tailwind to gold prices. Moreover, as widely anticipated, a “policy mistake" by the Fed, where the central bank fails to achieve a soft landing with the gradual tapering program, will hurt the economic growth," the experts wrote.

Goldman Sachs Group has lowered US GDP growth forecast for 2022 to 2.4% from the earlier 2.6%, and 1.6% for 2023 from the projected 2.2%. JP Morgan has also cut its forecast for the H2 2022 to 2.4% from 3%.

“Continued high inflation, given much of it is aided by supply side pressures, along with slowing economic growth may result in a stagflation-like scenario. This bodes well for gold prices," the fund house said.

Additionally, any escalation in the Russia-Ukraine war will reignite risk aversion, creating demand for the yellow metal.

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