Gold, silver price jumps as US dollar hits five-week low. Good opportunity to buy?

Gold prices remained highly volatile during the week gone by and closed with minor losses of 0.78 per cent. However, gold and silver prices gained some momentum on Friday after US dollar hit five week low in global merchandise. However, the upside in yellow and white metal was limited as Indian National Rupee (INR) ascended to five week high on last session of the week gone by. This could become possible after the ECB and Bank of Japan raised interest rates after the hawkish commentary by the US Fed in its FOMC meeting.

According tp commodity market experts, gold prices slipped earlier last week as US Fed signaled two more rate hikes by the end of 2023. However, after interest rate hike by ECB and Bank of Japan brought relief for the precious yellow and white metals as US dollar slipped to five week lows. However, ascendance in gold and silver prices were limited as rupee ascended to five week high as well.

US Fed meeting

On why gold and silver prices were under pressure last week, Sugandha Sachdeva, Executive Director & Chief Strategist at Acme Investment Advisors said, "Gold prices remained highly volatile during the week and closed with minor losses of 0.78 per cent for the week. The major highlight of the week was the US inflation reading wherein it rose at a 4% rate on an annual basis in May, the lowest in the last two years as compared to 4.9% in April. Besides, the focus was on the US Fed meeting and as widely expected, the Fed kept its benchmark rate unchanged after ten consecutive rate hikes, but maintained a hawkish stance. The US central bank signaled two more rate hikes this year as it continues its fight against persistently high inflation."

INR vs USD

“There could have been sharp upside in gold and silver prices had Indian rupee not ascended to five week high and came below 82 levels,” said Anuj Gupta, Vice President — Research at IIFL Securities.

"This led to a downward drift in gold prices, and they breached the key support of $1935/per ounce and Rs.59200/10gm which have been acting as strong cushion areas for the past three months. Prices didn’t quite sustain at lower levels and recovered swiftly as a host of US economic data raised expectations that the Fed will soon end its rate hike program. Furthermore, the dollar index weakened to five-week lows, providing a respite to gold prices," Sugandha added.

Triggers that may dictate gold, silver prices

On triggers that may help gold and silver prices to extend uptrend shown on Friday, Nirpender Yada, Senior Commodity Research Analyst at Swastika Investmart said, "The European Central Bank raised the main refinancing rate by 0.25 percent, and ECB President Lagarde hinted at another hike in July, strengthening the euro and putting pressure on the dollar. The US Dollar Index has registered a decline of 1.7 percent in the last week."

Gold price outlook

The Swastika Investmart expert went on to add that gold and silver prices have seen a recovery from lower levels despite the Fed's hawkish remarks, while the short-term rally in the dollar index seems to be coming to an end, which may increase the chances of a resumption of the rally in precious metals.

On outlook for gold price in near term, Sugandha Sachdeva of Acme Investment Advisors said, "Outlook ahead looks positive for the yellow metal as the Fed's decision to keep interest rates unchanged has provided some relief. Besides, on the technical front, prices have managed to close above the crucial support of ₹59,200 per 10 gm ($1935 per ounce) which could lead to a rebound in prices. A sustained move above ₹59,600 per 10 gm mark would direct prices higher towards the level of ₹60,400 per 10 gm, while support resides at ₹58,500 per 10gm mark."

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.