Gold’s Fading Luster; Gold Struggles Amidst Changing Investor Sentiments, In India Too The Upcoming Festive Season Offers Little Hope, Falls By Rs 2550 In Last 10 Days

Gold’s Shine Fades Amidst Investor Shifts

The allure of gold as a safe haven for cautious investors is waning this year; Gold prices recently settled at $1,831.80 per troy ounce, marking their lowest close since March.

The decline in the prices has been ongoing for several months, accelerating in recent weeks due to surging bond yields and a stronger dollar.

So why is the price of this precious metal going down?

Traditionally, high bond yields tend to attract investors away from gold since government bonds offer regular coupon payments.

Additionally, a strengthening dollar makes it more expensive for foreign investors to buy gold, which is priced in dollars.

Earlier this year, gold prices surged to near-record highs due to concerns over the collapse of several US regional banks and persistent inflation.

Investors also hoped that a banking crisis might force the Federal Reserve to change its course on interest rate hikes, which could boost demand for gold.

However, since then, the banking sector has stabilized, and the US economy has remained resilient despite the Fed’s rate hikes, leading to worries that interest rates will remain elevated for an extended period.

In September, the Fed signalled its intent to raise rates once more this year and keep them high through 2024, sending US Treasury yields to their highest levels in over a decade and strengthening the dollar, further pressuring gold prices and precious-metal mining stocks.

Shares of companies like Barrick Gold, Kinross Gold, and Northam Platinum have suffered declines in recent months, with the SPDR Gold Shares exchange-traded fund, which tracks physical gold performance, also experiencing a 5% drop.

India Outlook
In India, the outlook for gold and silver prices remains pessimistic, with investors seeking better returns in assets like the dollar and bonds.

Analysts anticipate further price declines in both metals; for instance – Axis Securities stated that Gold is no longer considered a safe-haven asset as the hawkish Fed rhetoric smouldered its yielding nature. Silver, too, underwent a significant decline due to slowdown in the Chinese economy, which dented industrial demand and application of this white metal. As a result, investors turned towards government securities after yields and the dollar index touched yearly highs.

As per the MCX data, in the past four months, spot prices of gold have fallen eight per cent to Rs 56,446 per 10 grams, while silver spot prices declined 13 per cent to Rs 67,177 per kilogram.

The same is true internationally; prices of gold and silver skid by 24 per cent in four months to $1,836 per troy ounce and $21 per troy ounce, respectively.

What is further contributing to the decline in gold prices is the weakening Indian rupee, as it makes gold and silver more expensive for the country; India is a leading importer of these metals.

The domestic currency’s value has depreciated two per cent in the span of 4 months to Rs 83 per dollar; since India is one of the leading importers of gold and silver, when that dollar strengthens or the rupee weakens, it forces the country to shell out more money.

Keeping the above points in mind, what is the expected trend in gold trading?

Gold is likely to trade in the range of Rs 55,500 (support)-58,200/10 grams (resistance), and a further 3 per cent correction could be on the cards if the dollar index sustained above 107 levels, as per Deveya Gaglani, Research Analyst – Commodities, at Axis Securities.

For silver, the near-term support was placed at Rs 65,000/kilogram and resistance at Rs 70,000/kilogram. A breakdown below the support zone, Gaglani added, could push prices by 5 per cent to Rs 62,000/kilogram.

On the other hand, Naveen Mathur, Director – Commodities & Currencies at Anand Rathi Shares and Stock Brokers, opines that a sharp-up move across precious metals is limited.

“We anticipate spot gold (current market price: $1,822 per troy ounce) to trade in the range of $1,800-$1,835 in the near term, while spot silver (CMP: $21.15) to trade between $19.8-$21.75 per troy ounce.

However, the question on everyone’s mind is, can the festive season pull up the gold prices?

Some experts believe that demand for gold and silver in India may be weak, with prices already higher compared to the previous year.

Gold prices are already 11-12 per cent higher than last year, which could limit retail demand in India.

Others, too, said that the festive season could fail to enthuse the bullion market as it is an international commodity; moreover, factors like the movement in the dollar index, interest rates, and geopolitical tension could also continue to impact prices of precious metals.

However, others see the potential for increased interest in these metals due to economic turmoil in China and weakness in its equity markets.

Similarly, Costco’s CFO Richard Galanti noted strong demand for one-ounce gold bars on the retailer’s website, while some investors, like Matt Dmytryszyn, CIO at Telemus, are maintaining positions in gold as a hedge against uncertainty.

The Last Bit, The story of gold’s recent struggles, reflects the complex interplay of financial markets, economic conditions, and investor sentiment.

As bond yields rise and the dollar gains strength, gold’s allure as a safe haven is diminishing, and precious metal mining stocks have also felt the impact, with companies like Barrick Gold, Kinross Gold, and Northam Platinum witnessing declines.

Nonetheless, not all hope is lost for gold as some investors, such as those seeking refuge in times of uncertainty, still find value in holding onto this precious metal.

Costco’s CFO pointed out strong demand for gold bars, highlighting that the appeal of gold endures in certain quarters.

In India, a significant consumer of gold, the outlook remains subdued due to a stronger dollar and a weaker rupee.

However, economic turmoil in China and global market volatility could rekindle interest in gold and silver.

The future trajectory of gold prices remains uncertain, influenced by many global factors, and while the festive season in India may not provide an immediate boost, the enduring appeal of gold as a store of value suggests that its journey is far from over.