Gold in the international market corrected slightly, after surging to a six-year high. However, domestic prices will follow suit after prices managed to stay above the psychological level of $1,500 an ounce.
Due to trade war worries, geopolitical tensions and expectations of policy, gold prices spiked. Also, easing by central banks amid the weak global economic outlook.
Since the start of the year, prices have gained more than 25% in the domestic and international markets.
Moreover, due to realistic policy measures taken by the central banks, gold has recently corrected. In addition, moderated the metal’s safe-haven demand, nascent signs of easing trade war tensions. Higher-level of profit-taking assisted the sentiments as well.
The Federal Reserve’s policy meet did not give a clear picture of the US central bank’s policy outlook. Investors’ stayed away from fresh bets on gold after.
As expected, with a 25-basis point rate cut last week the Fed’s two-day meeting concluded. However, diminished chances of further rate cuts from the world’s largest economy, it described the US economic outlook as favorable. The implementation of interest rate cuts will be to support non-yielding assets such as gold.
Furthermore, this is the second time that the Fed reduced its interest rates. In the second quarter, US economic growth has slowed down to 2%, which coupled with low inflation prompted policymakers to cut rates and low job creation.
Trade tariff exempted US goods welcomed by the United States. Similarly, proposed tariffs on Chinese goods are delayed from the U.S. Ahead of the trade negotiations, this is considered a positive gesture from both sides.
Straining the global economy, the trade war between the world’s top two economies has dragged for more than a year-and-a-half. Investors sought shelter in safe-haven assets like gold amidst forecasts of a weak global economic outlook.
Gold Demand during Warlike Situation
Lower-level support for gold is due to the on-going geopolitical tensions in the Middle East. Gold’s demand pushed back because of the warlike situation between the US and Iran and attacks on Saudi Arabian oil fields by Houthi rebels.
SPDR gold trust still placed at its recent highs, though prices have corrected down. While investment interest for gold is still high with the holdings of the world’s largest gold ETF. Meanwhile, long positions declined to a one-month low level. The management is under Money Managers at COMEX platform.
Looking ahead, gold would be crucial to the next round of US-China trade talks. Any hints of easing trade disputes would further weaken the yellow meal and vice versa.
Investors will watch the Policy easing from central banks, especially from the US Fed and its impact on the dollar.
In addition, weak international prices coupled with moderate demand and strong Rupee weighed down the sentiments in the domestic market. As record-level prices deterred customers, Indian demand is reportedly lower.
Gold demand is usually higher in India during September-December, due to higher wedding demand. Also, during these months, Festivals such as Diwali and Dussehra are celebrated.
On the price front, we expect rallies to continue as long as prices stay above $1,462. Also, it possibly takes prices towards $1,420 or more if a close below the same may show weakness. $1,365 is the trend reversal point.
A move to Rs 41,800 per 10 gram is still open in the domestic market. On the contrary, a recovering rupee is likely to weigh down the sentiment.
