India Gold Prices May Touch Rs 72,000 As Rally Continues
The current rally is fueled by expectations of a Federal Reserve rate cut spurred by easing price pressures within the U.S. economy.
Gold prices could go as high as Rs 72,000 per 10 grams this year, driven by global cues and domestic demand, according to experts.
Bullion surged Rs 800 to hit a fresh record high of Rs 65,000 per 10 gram in India on Tuesday, according to HDFC Securities Pvt. On the Multi Commodity Exchange of India Ltd., spot prices rallied over Rs 1,100 to close at a record high of Rs 64,413, according to Bloomberg data.
The current rally is fueled by expectations of a Federal Reserve rate cut spurred by easing price pressures within the U.S. economy. Persistent geopolitical tensions and the continued accumulation of gold reserves by central banks worldwide have further bolstered prices, Sugandha Sachdeva, founder of SS WealthStreet, which closely tracks commodities, told NDTV Profit.
Gold prices and interest rates generally tend to have an inverse correlation—when rates go up, it makes fixed-income investments (such as bonds and money market funds) more attractive than the precious metal, and vice versa. Thus, investors typically start buying gold ahead of rate cuts.
"Currently, gold prices appear well supported within the range of Rs 61,200 to Rs 59,500 per 10 gm," Sachdeva said. "Declines in prices are expected to attract buying interest, potentially driving prices to a new record high of around Rs 72,000 during the year."
Correction Cues
Although analysts expect the bullion to rise, intermittent bouts of corrections are anticipated. Any surprise on the U.S. rate cut timeline can exert pressure on the dollar, while tensions in the Middle East and the growth outlook in China—bullion's largest market—can also weigh sentiments.
“We think the rally is fragile... We would not be surprised to see a small downward correction in the coming days on the back of profit taking," said Thu Lan Nguyen, head of commodity research at Commerzbank AG, according to Bloomberg.
Domestic events such as the upcoming general elections can also trigger swings in gold prices, influenced by the prevailing sentiment towards the economy and the local currency.
A strong and stable government may instill confidence in investors, said Sachdeva, and lead to a stronger rupee. "In such a scenario, gold prices may face downward pressure as investors shift towards riskier assets."
Conversely, uncertainty or political turmoil surrounding the elections could lead to a flight to safety, prompting investors to seek refuge in gold as a hedge against volatility. This increased demand for gold could drive prices higher, she said.
The Indian rupee is already the best-performing currency in Asia so far this year, underpinned by factors like a reduction in the current account deficit and strong foreign exchange reserves. A stronger rupee will make gold cheaper in India.
While the BSE Sensex has gained 1.94% since the start of 2024, India's top gold exchange-traded fund, Nippon India ETF Gold BeES, which manages Rs 8,700 crore, has returned 1.64%.
The benchmarks are already close to life highs, and so is the bullion, which Sachdeva says is an "unusual phenomenon" as the two asset classes share a traditionally inverse relationship.
"While the markets are exuberant, it's essential to exercise caution as volatility is expected to persist, which could potentially lead to sharp corrective movements in the days ahead," she said.
