India Gold Quietly Slides Back At Rs. 63K Range, Should You Buy It For High Returns Ahead?

The recent report by the World Gold Council indicates that the total gold consumption in India declined by 3% to 747.5 tonnes for 2023. If the gold prices in India stay less volatile then the total demand for the current year is expected to climb around 850 to 900 tonnes, compared to the 750 to 800 tonnes average consumption witnessed every year. The current yellow metal rates in India today are following the international trend and fell by Rs. 220/- per 10 grams, reaching flat Rs. 63,000/- per 10 grams.

The 22-carat Indian gold price is currently at Rs. 57,750/- per 10 grams, a Rs. 200/- hike since yesterday's session, while the 18-carat gold rate in India today has dived lower by Rs. 160/- to get cheaper at Rs. 47,250/- per 10 grams. As per the Goodreturns website, the average rates for yellow metal have fallen by Rs. 600/- or 0.94% in the past five days posting the previous resistance levels. The prices are currently 1.94% lower than the all-time high price recorded in December 2023 at Rs. 64,250/- per 10 grams for pure gold and Rs. 58,900/- for 10 grams of standard gold.

Internationally the bullion gained and lost momentum amidst mixed indications posted this week over US capital markets and US dollar value. US non-farm payrolls resulted in double than expectations, uplifting the US dollar from weekly lows, pushing a downward pressure on spot gold prices to remain close by the psychological levels of $ 2,000/-. On Tuesday, the spot gold rates are trading around $ 2,024/- per ounce, almost a dollar less than the previous day's closing.

According to Chirag Mehta, CIO, Quantum AMC and Ghazal Jain, Fund Manager, Alternative Investments, Quantum AMC, "Aggressive rate cut bets unwound in the first month of the new calendar year on the back of strong economic data in the United States. Federal Reserve policymakers' signal to maintain a restrictive stance till they are sure of a sustained slowdown in inflation also contributed to the dialling back of market expectations. Resultantly the US Dollar Index moved up from sub 102 levels to above 103.

The ongoing tensions in the Middle East also boosted demand for the Greenback. US bond yields too began to reflect the higher-for-longer Fed stance with the US 10-year Treasury bond yield moving from 3.90% to 4.18% during the month before ending the month flattish. Gold which started January at the $2060 per ounce level lost ground to higher US dollars and yields; moving closer to the $2000 mark as the month progressed. While diminishing odds for aggressive policy easing by the Fed in 2024 capped the upside, geopolitical risks and resulting risk aversion kept the asset class in favour. The precious metal ended the month ~1.20% down, near $2040 per ounce levels. Domestic gold prices closed the month ~0.92% lower."

He further adds, "The US Personal Consumption Expenditures (PCE) Price Index held steady at 2.6% on an annual basis in December. Meanwhile, the annual Core PCE Price Index, which is the Fed's preferred inflation measure, slowed more than expected to 2.9% from 3.2% in November. Despite this slowdown in underlying price pressures, a stronger preliminary US GDP print which suggested that the economy grew by 3.3% in Q4 of 2023, higher than the projected growth rate of 2.0%, cemented market expectations that the rate easing cycle may not come as early as initially thought.

The S&P Global Flash US Composite PMI came in at 52.3 in January, above December's 50.9, the fastest rise in business activity since June 2023. The Manufacturing PMI rose into expansion after 8 months at 50.3 in January, up from December's 47.9. The Services PMI improved to 52.9 in January up from December's 51.4. The US economy added 2,16,000 new jobs in December as compared to 1,70,000 expected, while the unemployment rate held steady at 3.7% compared to expectations for an increase to 3.8%. Retail sales in the US increased by 0.6% month-over-month in December, higher than the 0.3% rise we saw in November and beating forecasts of 0.4%."

"The US economy's resilience on multiple grounds has made the job tougher for US policymakers as improving economic outlook could keep price pressures elevated. Premature rate cuts could risk re-stimulating the economy and reignite price increases. Also, while there has been progress on the inflation front, it remains above target. The Fed, as widely anticipated, kept interest rates unchanged in the range of 5.25-5.50% for the fourth time in a row in its January meeting. Chair Powell also pushed back against speculation of rate cuts stressing they are in no rush in shifting the current monetary policy. The CME Fedwatch tool indicates expectations of a 25-basis point rate cut in March have moved down to 35% from 73% at the end of December.

The situation in the Middle East remains volatile with the potential to escalate into a broader regional and international crisis. Supply chains and oil prices remain vulnerable to flare-ups in the region. A peaceful resolution appears unlikely at this stage, which should keep markets on edge and keep gold relevant as a portfolio diversifier.

Gold is likely to lose some appeal and stay volatile in the near term due to an uncertain monetary policy path, but the downside will remain limited given the eventuality of rate cuts in 2024 and growing geopolitical unrest. Investors can use this period of consolidation to build their long-term exposure to gold." says Mr Mehta and Mr Jain for their February 2024 Gold Outlook.

Mr. Rahul Kalantri, VP of Commodities, Mehta Equities Ltd expressed, "Gold and silver extended their fall amid strong gains in the dollar index and waning hopes of Fed rate cuts. The dollar index rose nearly 3-month high after the U.S. Fed Chairman said he is not in a hurry for interest rate cuts and would be keen to bring inflation down to its target rate of 2.0% before looking at interest rate cuts.

Also, the U.S. 10-year bond yields surged and eased safe-haven demand for gold and silver. We expect gold and silver prices to remain volatile in today's session amid volatility in the dollar index and U.S. bond yields. Gold has support at $2010-1996 while resistance is at $2038-2051. Silver has support at $22.10-21.91, while resistance is at $22.55-22.72. In INR terms, gold has support at Rs62,040-61,840, while resistance is at Rs 62,490, 62,610. Silver has support at Rs69,840-69,180, while resistance is at Rs70,950, 71,380."