Gold prices erase weekly gains as US dollar bounces back to one week high. Should you buy in this correction?

Silver price finished ₹483 per kg lower at ₹74,966 levels, erasing its weekly gains during last trade session in the week gone by. In international market, silver rate today is $24.57 per ounce.

Why demand for gold diminished?

On why gold prices erased weekly gains and nosedived from nine-week highs, Sugandha Sachdeva, Executive Director & Chief Strategist at Acme Investment Advisors said, “Gold prices closed almost flat for the week as the metal erased all of the gains seen early this week. The metal approached levels close to Rs. 60,000 per 10 gm but reversed its course, ending with marginal losses. The weakening of the dollar index, which briefly dipped below the critical 100.50 mark, initially supported gold’s rise. However, as the greenback recovered to a one-week high, the appeal of precious metals diminished. Additionally, with market sentiment favouring risk-on assets, interest in precious metals waned. In the international markets too, prices were rejected by the levels of around $1,985 per ounce, from where they reversed course on the downwards incline.”

Speaking on why gold has become a risky asset all of a sudden, Praveen Singh, Associate VP — Fundamental Currencies and Commodities at Sharekhan by BNP Paribas said, “The US Dollar Index faces a strong resistance level in the 100.80-101 zone, though European currencies appear to be vulnerable, thus gold is expected to be on the defensive. Apart from the rate cut notion, which is influencing yields and dollars significantly, gold presently does not have any specific factors to support it. In the absence of safe haven demand, the metal is trading like a risk asset or any other commodity for that matter.”

On important levels in regard to gold price today, Sugandha Sachdeva said, “Looking ahead, we can expect heightened volatility in gold in the short term, with key support at ₹58,700 per 10 gm and resistance at ₹60,500 per 10 gm. The overall outlook remains positive as long as gold holds above $1,893 and ₹58,000 per 10 gm levels on a closing basis.”

US Fed meeting in focus

Advising gold investors to remain vigilant about the US Fed’s monetary policy outcome, Sugandha Sachdeva said, “All eyes are now squarely on the US Fed’s monetary policy outcome, wherein a rate hike of 25 bps looks almost sealed. Rising interest rates are increasing the opportunity cost for buying gold, thereby reducing its attractiveness. However, there are hopes that this rate hike might be the last in the Fed’s year-long tightening campaign.”

The Acme Investment Advisors expert said that a All eyes are now squarely on the US Fed’s monetary policy outcome, wherein a rate hike of 25 bps looks almost sealed. Rising interest rates are increasing the opportunity cost for buying gold, thereby reducing its attractiveness. However, there are hopes that this rate hike might be the last in the Fed’s year-long tightening campaign.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

Updated: 22 Jul 2023, 08:01 AM IST