IGI Logo

According to Motilal Oswal Financial Services Ltd (MOFSL) continue maintain Buy on Dips stance for Gold; in terms of price projections, gold is expected to find support at Rs. 69,500 levels, with potential targets of Rs. 76,000 on domestic front, while on COMEX, $2430 remains an important support, with potential target of $2650.

In its latest report, MOFSL says the gold market has shown resilience in 2024, marked by significant volatility driven by geopolitical tensions, economic uncertainties, and evolving monetary policies. The year began with a strong rally, pushing gold to all-time highs due to heightened safe-haven demand. This surge was fueled by ongoing conflicts, particularly in Ukraine and the Middle East, which have continued to keep investors wary of global stability. Such geopolitical risks have traditionally supported gold prices, and the persistent nature of these tensions suggests that gold's role as a haven will remain crucial in near future. This year, we also have US Presidential elections, uncertainty relating to the same could trigger volatility in bullion.

Negative influences such as a 9% cut in India’s Gold import duty, the unwinding of Yen carry trades, and speculative profit booking have contributed to price pressures. Market dynamics remain complex, with Gold’s performance closely tied to fluctuations in the Dollar Index, US Treasury yields, and global monetary policies.

Mr. Navneet Damani, Group Senior VP – Commodity Research, Motilal Oswal Financial Services said, “Central bank gold purchases slowed in Q2, dropping 39% quarter-on-quarter to 183 tonnes. Despite this decrease, the buying remained robust, exceeding the five-year quarterly average of 179 tonnes and continuing the positive long-term demand trend. Expectations of a more accommodative monetary policy could further boost gold's appeal. Gold's future outlook is also supported by central bank buying, particularly by emerging markets looking to diversify their reserves. Furthermore, domestic demand in key markets like India has remained strong, aided by reduced import duties and favourable economic policies, which continue to bolster gold's demand fundamentals. Additionally, interest rate cut expectations, geo-political tensions and black swan events could further support the prices.”

Rate cuts: Central Banks dilemma

According to MOFSL, Central banks have played a pivotal role in shaping Gold prices through their monetary policy actions, particularly in response to evolving economic conditions. Since 2022, major central banks have collectively raised interest rates by more than 1,600 basis points, reflecting a robust effort to combat high inflation and stabilize their respective economies. Inflationary pressures that peaked during the global economic disruptions caused by the COVID-19 pandemic and subsequent supply chain issues drove this aggressive tightening cycle.

Given these mixed signals, the Fed has opted for a pause on rate cuts so far. While there are compelling arguments for a rate reduction—such as mitigating geopolitical risks and supporting economic growth—the prevailing uncertainty and mixed economic data suggest a more cautious approach. The Fed must balance these factors carefully, weighing the potential benefits of a rate cut against the risks of accelerating inflation or undermining ongoing economic stability.

Moreover, domestic demand in key markets such as India has stayed robust, aided by reduced import duties and supportive economic policies, which continue to bolster gold's demand fundamentals. Additionally, expectations of interest rate cuts, geopolitical tensions, and black swan events could further drive prices upward.

Above views are of the author and not of the website kindly read disclaimer