Why gold prices have hit all-time highs and do experts see further gains ahead?

latest trigger for Sleep In the US, inflationary pressures have eased and low interest rates are expected to increase. Data released on Thursday showed US consumer prices fell for the first time in more than two years in December, raising hopes that inflation was now on a sustained downward trend. The Labor Department report showed US consumer prices rose 6.5% on an annual basis in December, in line with expectations from a 7.1% increase the previous month.

Gold is an international commodity and is denominated in US dollars – so a weakness in the greenback tends to push up the prices of the yellow metal. The US dollar index has softened to 102 from a high of 114 seen in September.

Gold’s rally has also been supported by the fall in US bond yields. The precious metal is considered an inflation hedge, but is highly sensitive to rising interest rates, which increases the opportunity cost of holding non-yielding bullion.

“Slower inflation means less aggressive interest rate hikes by the Fed. The probability of a 25-bps hike at the February FOMC meeting has increased to 92.7%, according to the CME Fed Watch tool. This kept gold prices trading above the resistance of $1884/oz. Which is an 8-month high. On the price action front, Comex gold closed above the resistance of $1884/oz. The bulls may now target the next resistance near $1920/oz. Support Now Priced near $1870/oz. A close above $1870/oz may indicate a false breakout,” said Ravindra V. Rao, CMT, EPAT, VP-Head Commodity Research, Kotak Securities Ltd.

Whether the metal can sustain the upward momentum depends on the rate hike decision by the Federal Reserve in its February meeting, says Rahul Kalantri, VP Commodities, Mehta Equities Ltd. The US inflation report was in line with market expectations, but was still under consideration. To be on the high side, he said.

Technically, MCX gold prices have strong support, says Jatin Trivedi, VP Research Analyst, LKP Securities 55,000 in Comex and $1850–1855.

Analysts say that fear of recession in the west and geopolitical tensions have also played a role in strengthening gold prices. Gold is considered a safe haven and often attracts investment in times of uncertainty and recession, a downturn in the economy.

Axis Securities has neutral stance on gold and recommends ‘buy-on-dips’ strategy. “Gold will remain a preferred asset class till the uncertainty over the Russia-Ukraine conflict subsides and will continue to attract investments as a proven hedge against other asset classes,” the brokerage said.

According to Emkay Wealth Management, central banks have bought 50 tonnes of gold on a net basis in November, which is 47% higher than the MoM. “This increased demand for the yellow metal, perhaps offsetting the selling by ETFs. Continued rise in yields and expectations of a Fed rate hike will keep gold prices in focus. Policy changes, if any, will reflect on the persistence of inflation.” Given the outlook will be at least two quarters away and also the target level will be far away from the current inflation readings. Gold is poised to move up with the right signals in interest rates, especially US rates,” it said.