There is some hesitation in gold prices on Wednesday even as the dollar weakened slightly. The yellow metal is trading in a narrow range ahead of the US Federal Reserve meeting next week. In the last 2-3 weeks, there has been a lot of rally in gold prices. Last week, the yellow metal also managed to shine above the $1,800 an ounce level, hitting a 4-month high. However, while investors anticipate the likely pace of rate hikes by the Fed in December policy, the real question is what will happen to gold if the FOMC continues to raise the key funds rate in 2023.
In early deals, spot gold climbed slightly above $1,773 an ounce, while US gold futures were trading near $1,785 an ounce. In contrast, the Dollar It fell slightly against a basket of world currencies.
Generally speaking, a fall in the greenback makes the yellow metal more attractive to buyers.
According to MK Wealth Management, gold prices have gained momentum in the last 2-3 weeks after trading in a range. gold prices Trading at 4 month high, it managed to cross $1800/oz level. After forming a base around 1630-1640, gold broke above 1720 levels.
The rally in bullion over the past few days is on account of comments from the Fed, which indicate further easing on monetary policy.
MK believes that gold may trade in a higher range with a base of 1730-1740, and targets 1830 and 1860.
Furthermore, MK highlighted that the third quarter of this year has registered a strong demand for gold. Demand came mainly from central bank purchases, 400 tonnes for the quarter, and retail consumers. The easing of COVID-related restrictions in China helped boost demand in China and retail jewelery demand in India also supported the markets. Despite the adverse sentiment, jewelery consumption rose to 523 tonnes, a 10% year-on-year growth. The overall demand growth was 28% on a year-on-year basis. But the 227 tonnes ETF outflow reflects the underlying weak sentiment.
However, MK also pointed out that even though gold prices had seen a rally, it could remain restricted due to rate hikes in future.
“US interest rates are still not near their peak,” MK notes, adding that the Fed may well continue to raise rates in 2023 as inflation is still at 8%, and the 2% target is still low. Too far from the target.
Moreover, MK believes that rate hikes by other global central banks could also cap the upside in gold prices. Also, in a rising dollar scenario, it is less likely that gold will be able to move higher. But easing in rate hike by the central bank could be beneficial for the yellow metal. But that could be some time from now.
At home, gold futures maturing on February 3 traded in early deals on MCX 53,897 up 137 or 0.25%. The intraday high and low of the commodity was around 53,908 more 53,785 respectively.
Silver futures maturing on March 3, were raised by 370 or 0.57% to trade 65,784. Commodity touched intraday high and low 65,789 more 65,500 respectively.
The FOMC’s last meeting for the current year is scheduled for December 13-14. While the US inflation data will be announced on December 13.
Disclaimer: The views and recommendations given above are of individual analysts or broking companies and not of Mint.
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