A slowdown in the pace of rate hike by Fed will boost Gold prices By Emkay Wealth Management
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Mumbai: Emkay Wealth Management, the wealth management and advisory arm of Emkay Global Financial Services have released a note on gold, price outlook, and the reason for the rally in the precious metal prices given the current setup.
Gold has been trading in a range of $1800–1880 in the last 1 month. The cues from the US Fed on likely slowdown in rate tightening has helped gold prices rally from levels of $1680-1730 to $1850-1880 currently. In India, the prices are trading near an all-time high aided by the marriage season demand. Globally, it is trading 5-6% lower than the all-time high level recorded in September 2022.
A slowdown in the pace of rate hike: A major reason for the rally in the prices of gold has been the cues from the US Fed. After a relentless tightening on the rate as well as liquidity front, the central bank has indicated a slowdown in the pace of rate hikes as key economic indicators, and inflation has stabilized. A slower rate hike of 25 bps going forward has softened the US Dollar, leading to a rally in gold prices. Gold is an international commodity, priced in US Dollars – so a softness in the greenback lifts the prices of the yellow metal. The US Dollar index from its high of 114 level witnessed in September has softened to 103 levels.
Recession fears: The recession fear in the West, geopolitical tensions, and unemployment levels have also played their part in the hardening of gold prices. Gold is considered a safe haven and often attracts investments in times of uncertainty and slowdown, recession in the economy.
Institutional buying: Central banks bought a net 50t of gold in November, up 47% MoM. This led to a rise in demand for the yellow metal, perhaps this offset the selling by ETFs. A consistent rise in yields and expectations of Fed rate hikes will keep gold prices in focus. Policy changes, if any, will be at least two quarters away given the persistence of inflation as also target levels being quite far away from the current inflation reading. Gold is poised to move up with the right indications in interest rates, especially US rates.
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