Safe haven gold to trend higher due to geo political uncertainties

Ahead of Diwali, gold prices are expected to edge higher in the immediate term. The price of the precious yellow metal has been rising in the past few weeks as conflict erupted in the Middle East and US treasury bond yields moved higher. According to Mumbai-based Emkay Wealth Management, the ongoing Middle East conflict has impelled investors’ preference for gold, which has resulted in an upward price mobility in the asset class. 

Gold prices have remained well supported at the $1,880 and $1,860 levels.

“Considered as a safe haven, especially in times of geopolitical uncertainty, gold is expected to trend higher in the immediate term,” said the financial advisory firm. It expects gold prices to remain at $1,990 and $2,030 levels. 

The price of 24-carat gold jumped by Rs 240 in early trade on Wednesday, with ten grams of the yellow metal selling for Rs 61,690. In Delhi, the price of ten grams of 24-carat gold stood at Rs 61,840. In Mumbai, the price of ten grams of 24-carat gold was selling at Rs 61,690. 

Data compiled by Bajaj Finserv shows a consistent rise in the gold rate ever since the war broke out in Israel on October 7. 

“Taking a perspective before the situation of conflict arose, despite persistent inflation across all major economies, gold was not able to rise much because with inflation came extremely hawkish monetary policy which pushed interest rates higher,” Emkay noted.  It said the rise in money market yields made currency yields attractive and this has resulted in gold moving sideways most of the time. 

“Gold prices have not broken through any key support levels convincingly in the last three months,” said the firm.

Additionally, contrary to the usual trend of gold moving up significantly in the weaker dollar scenario, the safe haven status has assumed significance despite a strong dollar scenario. The rupee appreciated by 5 paise to 83.11 against the US dollar in early trade on Wednesday. 

“On the supply front, the expectation is that fresh supply from the mines as well as of used gold will be relatively high. We also expect continued demand from central banks. An easing monetary policy stance projected to come into effect in mid-2024 which will help bring an incremental value to the investors taking long positions from now,” said Emkay Wealth Management.