The glittering ascent of gold prices came to a halt last week, as the precious metal experienced a notable decline after enjoying a five-week winning streak. The dip in prices can be attributed to several factors, including a reduction in geopolitical tensions between Iran and Israel and speculation surrounding the possibility of a US Federal Reserve rate cut. Let’s delve into the details of the recent developments impacting gold prices and the market outlook.
Easing Geopolitical Tensions and Profit Booking
Gold futures on the Multi Commodity Exchange (MCX) for June 2024 expiry witnessed a reversal in fortunes, marking the end of a five-week rally. The futures contract closed at ₹71,486 per 10 gm level, registering a decline of ₹2,472 per 10 gm or approximately 3.35% from its record high of ₹73,958 per 10 gm touched on April 12, 2024. This decline in prices can be attributed to a reduction in geopolitical risks in the Middle East, leading to a decrease in demand for gold as a safe-haven asset.
Impact of US Economic Indicators and Fed Rate Cut Speculations
The dip in gold prices was further fueled by developments in the US economy, particularly the first-quarter slowdown and inflation indicators. The US economy exhibited slower growth than anticipated in the first quarter, but the core Personal Consumption Expenditures (PCE) price index for March exceeded estimates on an annualized basis. This unexpected inflationary pressure dampened expectations for an imminent US Federal Reserve rate cut, thereby limiting the upside potential for gold prices. Higher interest rates tend to diminish the appeal of non-yielding assets like gold.
US Dollar Strength and Treasury Yields
Another factor contributing to the decline in gold prices was the resurgence of the US dollar rates and treasury yields. The rebound in the US dollar followed disappointing economic performance in the first quarter, leading to speculation that the US Federal Reserve may delay a rate cut in the near term. Consequently, investors shifted their positions from precious metals to currencies and bonds, putting pressure on gold prices.
Support Levels and Price Outlook
Despite the recent dip in gold prices, experts suggest that the precious metal has found support at key levels both domestically and internationally. In the Indian market, gold prices stabilized near the crucial support level of ₹70,500 per 10 gm, while internationally, the support level stood at $2,300 per troy ounce. This stabilization could potentially pave the way for a rebound in prices in the near term.
Looking ahead, the outlook for gold prices remains uncertain, with the strength of the US dollar index and geopolitical risk premium playing crucial roles. While there is potential for a bounce back in prices, further declines cannot be ruled out, especially if current support levels are breached. Key support levels to watch for include $2,260 and $2,225 per ounce internationally, and ₹68,200 per 10 grams domestically, from a near to medium-term perspective.
Market Analysis and Recommendations
It is essential for investors to consider the views and recommendations of certified experts before making any investment decisions. The recent developments impacting gold prices highlight the dynamic nature of the market and the importance of staying informed about global economic indicators and geopolitical events.
Disclaimer: The views and recommendations provided above are those of individual analysts or broking companies and do not necessarily reflect the views of Mint. Investors are advised to seek advice from certified experts before making any investment decisions.
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