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Gold may lose its appeal as an investment class with the US Federal Reserve turning more aggressive based on persistently high inflation numbers, according to a note by Emkay Wealth Management Ltd.

Gold has outperformed the other asset classes due to the uncertainty created by the geopolitical tensions between Russia-Ukraine and spike in crude oil prices.

However, the yellow metal has been trading in the range of $1,810-1,875 for the past one month.

The report highlighted that gold is trading in a narrow range due to two reasons—the persistent inflationary pressures and the rising rates. Inflation has become a key risk to growth for economies across the globe. Inflation has been hovering near multi-decade high in the US and UK.

Back in India, the wholesale price index (WPI) data stood at a level highest seen since 1994, retail inflation too has been above the 6% mark for five consecutive months.

Historically, gold prices tend to gain during phases of high inflation. However, this is not the case currently.

The reason is that the stubborn and sticky inflation has forced central banks across the globe to hike rates aggressively and unwind the easy monetary policy to reverse the excess liquidity in the system.

“The hike in the US interest rates by the FOMC has been much faster and higher than expected. This has rendered strength to the US dollar, and the currency yields are rising too with hike in policy rates. This underlines the commitment to contain inflation, and therefore, gold may not that be well sought after, as inflation may edge lower over the coming months," said Emkay Wealth Management.

At the same time a strong dollar pulls down gold prices as the unit in which the buyer or seller is dealing is appreciating. In a scenario of dollar appreciation the prices of commodities which are quoted in dollars cannot move up due to the dollar strength.

According to the report, gold is expected to trade in narrow range until clarity in the US on interest and other monetary policy measures.

“This is the prevailing situation, and hence the very narrow ranges in which the price is moving. The support levels for gold are at $1,760 and $1,730 levels, and the upside may be capped at $1,930/40 levels in the near term," the report added.

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