Gold up 3%; experts split on whether rally can sustain in coming months

Weakness in the dollar and US Treasury yields supports recovery, but analysts differ on whether the rally can sustain amid inflation and interest rate uncertainties

Gold prices inched up by nearly 3 per cent on Wednesday and could see a near-term recovery following the midterm election results in the United States (US), which favoured the Democrats over the Republicans led by President Donald Trump, analysts said. 

Market participants, however, remain divided on whether the latest uptick marks the beginning of a sustained rally or is merely a short-covering-led relief bounce, with volatility likely to persist over the coming months. 

In international markets, gold ended 2.9 per cent higher at $4,042.2 per ounce, while in India, prices were at ₹141,055 per 10 grams. 

 

Manav Modi, commodities analyst at Motilal Oswal Financial Services, said gold has already started witnessing a near-term rally, supported by weakness in the US dollar index and treasury yields. 

 

“We expect gold to move towards $4,200 (₹148,000 per 10 gm) in the near term, with a medium-term target of $4,500-4,700 (₹1,60,000-1,68,000 per 10 gm). Recent lows of $3,800-3,900 (₹135,000-138,000) would offer attractive accumulation opportunities for investors,” said Modi. 

However, some others believe that recovery could take some time. 

“We believe the recent uptick in gold prices is largely a temporary relief rally, driven by short-covering. We are not yet fully bullish on gold and believe prices could witness another correction once they approach the ₹1,48,000-1,49,000 levels, potentially moving back towards the support zone of ₹130,000,” said Ashish Rajodiya, head-commodities, PL Capital. 

Rajodiya said that until inflation starts easing meaningfully and interest rates begin to move lower, gold could continue to remain under pressure. “We would, therefore, advise investors against fresh buying at current levels,” he said.

On the physical demand front, there are signs of improvement. 

Yogesh Singhal, chairman of the All Bullion and Jewellers Association, said that after a sluggish market in the first nine months of the year, he has seen a sharp recovery in gold jewellery demand over the past month. 

“Diwali demand has been good, and if this momentum carries into the upcoming wedding season, jewellers could make up for their earlier losses,” said Singhal. 

“Although gold prices are now higher than a year ago, the overall value of jewellery purchases has remained largely unchanged. As a result, even though sales have fallen in volume (weight) terms, they have held steady in value terms, which points to a recovery in consumer demand,” he added.