Just before to the RBI monetary policy meeting on April 6, gold prices in India breached the Rs 61,000 barrier for the first time, mostly due to global economic uncertainty.
Although currently having a relatively low per capita consumption, India is the second largest consumer of gold. While agricultural earnings and a drop in household savings rates may pose short-term risks to the market for yellow metal, income may serve as the primary long-term driver of that demand.
But, a number of other factors, such as RBI policy decisions, can have an impact. But, despite the high interest rates, gold prices in India have increased by almost 20% over the past year and are currently hovering above Rs 60,000 for 10 kilos.
A CNBC-TV18 poll indicated that the RBI will likely increase its repo rate by 25 basis points on Thursday to cool the nation’s soaring inflation while maintaining an accommodative stance.
The yellow metal is typically seen as a safe haven asset in a difficult financial scenario. It is in accordance with bullion traders’ projections, who now forecast that precious metals prices, particularly silver, will rise higher as a result of a slowing US economy. Nonetheless, it’s expected that the Federal Reserve will continue raising rates this year before taking a break.
“We believe the market will be well supported not only by ETF inflows once Fed fund rates have peaked but by a stronger ‘Wealth’ effect from the East as the dollar depreciates into year-end on yield compression and EM GDP grows strongly on China re-opening effects,” Goldman Sachs said in the note.
Higher interest rates make the non-yielding gold bullion less appealing, despite the fact that it is still historically thought of as a hedge against inflation and economic difficulties.
According to the most recent trade data from the Commodity Futures Trading Commission, precious metals are also continuing to profit from hedge funds rejecting their bearish bets. With prices maintaining strong support levels and producing upward momentum, new bullish bets are entering the market.
According to Ole Hansen, Head of Commodity Strategy at Saxo Bank, “the combination of continued and strong central bank demand, which helped support prices in 2022 when yields and the dollar surged higher, and renewed investment demand via ETFs following months of net selling is likely to be the main engine that support sustainable higher gold prices.”
“Hedge funds will continue to add an additional layer of strength during rallies, but also weakness during moments of decline,” according to their non-sticky and directional posture.
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