He advised buying gold as long as prices maintain above ₹68,500 per 10gms, targeting an initial upside of ₹74,000 per 10gms, followed by ₹78,000 per 10gms levels. Conversely, a decisive break below the previous swing low of ₹65,200 per 10gms could disrupt the trend, potentially leading gold to retest the ₹63,300-Rs.63,800 per 10gms range, it predicted.
Technical View
Following a robust performance last year, gold has been persistently climbing upward, registering an approximate 12.50 percent gain on domestic exchanges thus far.
On the daily chart, Religare noted that prices are currently consolidating after a sharp rise, with ₹70,000 per 10 gms ($2280) acting as a pivotal level. Although buyers are hesitant to enter during this consolidation phase, a slight dip towards the 50 SMA at ₹68,500 per 10gms ($2235-$2240) could present a favorable buying opportunity for the next leg of upward momentum, it said.
Meanwhile, on the weekly chart, prices have extended away from the 20 SMA and 50 SMA, prompting bulls to anticipate a pullback. A temporary pause in prices indicates a positive signal, especially since there’s a bullish flagpole pattern in play, which may extend further before prices resume their upward trajectory, added the brokerage.
Outlook Ahead
As per the brokerage, the future of gold remains dynamic, shaped by various global factors such as central bank policies, geopolitical scenarios, and economic indicators.
While the gains seen in the current year are commendable, the historical trend of higher returns during turbulent periods highlights gold’s potential to flourish amidst heightened uncertainty.
The brokerage explores the reasons that position gold as an appealing investment option for the year ahead:
Fed Monetary Policy
Religare noted that the Federal Reserve has sustained a restrictive approach to monetary policy during this fiscal year, maintaining interest rates at 5.25-5.50 percent for the past six meetings. Recent weak US job data and the Fed’s inclination towards easing suggest potential rate cuts by year-end. Investors now foresee just one rate cut this year, which could lead to a weaker dollar and potentially boost gold prices.
US CPI Inflation
Religare highlighted that Federal Reserve Chair Jerome Powell has expressed uncertainty about achieving the 2% inflation target, with U.S. inflation currently at 3.48%, above the target. Recent data suggest inflation is cooling off more slowly than expected, with the consumer price index rising 3.5% year-over-year in March 2024. Additionally, rising conflicts in the Middle East have driven up crude oil prices, exacerbating inflation. Gold’s role as a hedge against inflation suggests it may remain a favorable investment option in the coming months.
Geopolitical Tensions
According to Religare, geopolitical tensions in 2024 are primarily concentrated around the Gaza war’s regional impact, with concerns regarding Syria’s relationship with Hezbollah and Hamas, supported by Iran. There is ongoing tension between Israel and other Arab nations, and the Ukraine-Russia conflict continues, highlighted by recent Russian attacks on Ukraine’s gas pipelines supplying the European Union markets. There is no indication these tensions will end soon, which suggests that the demand for gold as a safe-haven asset will continue, potentially leading to further price appreciation.
Geopolitics And Its Impact On Gold Prices
Religare reports that the global economy may experience poor performance by the end of 2024, marking the slowest half-decade of GDP growth in the past 30 years. Global growth is projected to decline to 2.4% in 2024 from 2.6% in 2023 while developing economies are expected to grow at 3.9%. Although the risk of a global recession has diminished, suggesting a strengthening US economy, rising geopolitical tensions could pose new challenges for the world economy. The International Monetary Fund (IMF) forecasts a gradual decline in global inflation, falling from 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025. The decrease in growth is expected to benefit gold prices as safe-haven demand for the precious metal increases during turbulent times.
Demand from Central banks
Religare highlighted that central banks view gold as a vital part of their financial reserves for diversification and managing domestic currencies. In 2023, central banks globally purchased 1,037 tonnes of gold, slightly less than the 1,082 tonnes bought in 2022, which was the highest amount since 1967. Currently, central banks hold about 20% of global gold production, with one-third of that being acquired in 2023.
In Q1 2024, central banks bought nearly 290 tonnes of gold, exceeding the previous year’s record, with China, Turkey, and India leading the acquisitions. This strong start suggests ongoing robust demand for gold in 2024.
Gold Investment Demand
According to Religare, the World Gold Council’s Q1 2024 report shows a 3 percent increase in global gold demand, totaling 1,238 tonnes, marking the strongest first quarter since 2016. This growth was largely due to strong over-the-counter (OTC) market investments and consistent central bank purchases. Demand for bars and coins also increased by 3%.
However, excluding OTC transactions, overall demand fell by 5 percent to 1,102 tonnes in Q1 2024 compared to the same period last year. In 2023, ETF outflows and a slight drop in bar and coin demand resulted in a total annual gold investment decline to a 10-year low of 945 tonnes, down 244 tonnes from the previous year. Additionally, Q1 2024 saw a global gold ETF holdings decrease of 114 tonnes.
Asia, particularly China, experienced growth in gold-backed ETF holdings in 2023 due to global geopolitical tensions, a declining dollar index, US bond yields, and uncertainty regarding future rate cuts by the Federal Reserve.
These factors combined indicate a promising outlook for gold investments in the near future.
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.
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Published: 10 May 2024, 01:38 PM IST
