Gold prices are expected to remain supported in near term
Gold is getting boost from dovish tones from major global central banks
In India, gold prices today crossed the 34,000 per ten gram, buoyed by a global rally in the precious metal. Global prices today rose to five-year high after the US Federal Reserve signaled rate cuts later this year. Spot gold jumped to a five-year high of close to $1,400 an ounce. Even as the US central bank on Wednesday left its benchmark interest rate unchanged for now, it signalled interest rate cuts beginning as early as July as it took stock of rising trade tensions and growing concerns about weak inflation.
Five factors driving gold prices higher:
1) Lower interest rates in the US decreases the opportunity cost of holding non-yielding bullion and weigh on the dollar, making gold cheaper for investors holding other currencies. The US dollar weakened while 10-year US yields dropped below 2% for the first time since November 2016 as expectations grow that major central banks will ease policy.
2) Buying from global central banks also helped support gold prices. "Gold since the start of 2019 has had a lacklusture performance, but surprisingly in the last one month we have seen a good run up in gold prices. It seems that in the phase of consolidation some major buying has taken place and one of the purchasers have been central banks. The latest report by WGC showed that some central banks in Asia including China, India and Kazakhstan and from Europe such as Russia, Poland and Hungary have begun accumulating gold, although in minimal quantity, and that is starting to reflect on prices," said Kishore Narne, head of commodity and currency at Motilal Oswal Financial Services.
3) Weak global growth forecast amid growing trade war tensions also stoked investors towards the yellow metal, says Hareesh V, head-commodity research at Geojit Financial Service. "Gold has been trading on a positive note for the last four weeks on growing geopolitical concerns and weak economic releases from the US and China that lifted its safe-haven appeal," he said.
4) Many analysts see further upside in gold prices. “Overall with the central banks love for gold on the rise, geopolitical uncertainty increasing and clouding of global recessionary environment, we believe that gold prices are likely to rally over the coming quarters. We continue to maintain a positive bias targeting $1435-1440 on the COMEX, while domestic gold prices could rally towards ₹34,050 followed by 34,400," said Motilal Oswal said in a report.
5) Gold is getting another boost from dovish tones from major global central banks. Gold is used to preserve capital during turmoil but generates no yield, therefore rising rates scenario is always a bad news for investors. Till the time uncertainties related to trade war remains elevated it is unlikely that gold prices may witness immediate selling pressure," the Motilal Oswal report further added.