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Comex Gold prices are set to finish approximately 2% lower for the year as prices remained under pressure in the second half of 2022 due to aggressive interest rate hikes and monetary tightening by central banks around the world, putting a lid on price gains.

Gold prices after touching an all-time high of $2,075 an ounce in March 2022, on the back of a geopolitical crisis, have steadily declined amid rallies in the haven US Dollar and bond yields due to hawkish monetary policy from US Fed. Rising interest rates are typically an obstacle for gold investors as it is considered as a non-yielding asset.

Also, the speculators and ETFs remained net sellers for the year which weighed on the yellow metal.

However, demand-side improvement in the last quarter of 2022 supports gold prices recovery from the loss of a healthy demand seen in Asian Countries, and stronger consumer and central bank buying helped year-to-date demand recover to pre-COVID level.

Comex Gold prices are set to finish approximately 2% lower for the year as prices remained under pressure in the second half of 2022
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Comex Gold prices are set to finish approximately 2% lower for the year as prices remained under pressure in the second half of 2022 (HDFC Securities)

Comex Gold prices posted a positive return in the first quarter of 2022 as prices rose on the back of tensions culminating in Russia’s invasion of Ukraine and geopolitics taking centre stage. In a situation like a geopolitical crisis, investors move to safe-haven assets like gold. However, gold prices gradually declined after the first quarter as eased geopolitical tension and a rally in the US dollar and Bond yields dampen the sentiments. The US dollar index hit a 20-year-high amid hawkish US Fed bets and is set to close up by 8% YTD.

The US Federal Reserve’s most aggressive rate hikes in 40 years to curb inflation growing at a similar pace has enabled US Treasury yields to rally with little stop since the start of the year. The US 10-Year bond yield hit a high of 4.33% in the month of October 2022 and set to close up by 128% YTD.

Global gold ETF registered a seventh consecutive monthly outflow this year and year-to-date, global gold ETFs have now seen 83 tonne of net outflow.

Gold price in India surged above 55,550 per 10 grams in March, taking cues from the international market and weaker rupee. March’s high gold price corrected to 48,951 per 10-gram level in the month of September. Still, in the domestic market gold price, year-to-date is up by approximately 12% due to import duty increase by Central Government and depreciation in Rupee.

On June 30, India’s Ministry of Finance notified that basic customs duty (BCD) on gold would increase from July 1. BCD on refined gold bars and gold dore increased to 12.5% and 11.85%, from previous levels of 7.5% and 6.9%, respectively. Meanwhile, Rupee depreciated nearly 11% in 2022 which ultimately supported the domestic gold price.

Looking forward, Gold has its share of unique qualities that make it an attractive buy-in for many people. Traditionally, gold prices trend upwards when there are higher inflationary and recession scenarios.

Gold performs inversely to market conditions in this way. Gold can be used for diversification in investor portfolio. Gold can protect investors portfolio in time of a recession scenario and investors can add higher weight to gold.

The global economy is at an inflexion point after being hit by various shocks over the past year. The biggest was induced by central banks as they stepped up their aggressive fight against inflation and it will likely continue for the first half of next year but at a slower pace which is supporting gold prices.

After strengthening for nearly two years straight, the US dollar has recently seen a steep drop, which is favourable to gold prices. Technically, Dollar and US bond yield is topped out and the correction trend will continue in both.

Gold price is likely to remain bullish until the price holds above $1,620 for the long term. Comex Spot has support at $1,620/1,570 per ounce, and resistance at $1,940/2,060. MCX Gold futures have support at 50,600/48,900 per 10 grams. Gold price will face resistance at 56,700/58,800 per 10 grams.

Dilip Parmar is Research Analyst, HDFC Securities

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

 

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