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Gold prices rally ahead of Akshaya Tritiya. What investors should know?

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Akshaya Tritiya, which is on May 10, has always seen fervent gold purchases stemming from the belief that investments made on this day would never diminish, thus bringing everlasting prosperity. Over the past three to four months, gold prices have shown significant volatility, experiencing roller coaster-like movements.

The precious metal has surged approximately 20%, hitting a record high of $2,431 per ounce in the international market on April 12 and exceeding Rs 74,000 in the Indian market due to strong purchases by central banks and demand from retail investors amid growing geopolitical tensions.

What is pushing gold prices higher?

  1. Fed: Gold prices edged higher as investors got fresh clues about whether the Federal Reserve will start easing its monetary policy from September 2024. Fed policymakers indicated they still expect to reduce interest rates by three-quarters of a percentage point by 2024 end, despite unfavourable economic data.
  2. De-dollarisation and reserve diversification: Second driving forces behind gold’s rising demand are from global central banks, which hold the physical metal (i.e., bullion) as part of their monetary reserves. As per the World Gold Council reports, global central banks continued buying gold and they added 16MT of gold in March month and total purchases reached 290 tonnes in the first quarter of this year.
  3. Uncertain global environment: We are still not out of the woods as Ukraine-Russia tension is still on, while new conflicts emerge between Israel and Palestine, and Israel and Hezbollah, potentially escalating at any moment. In addition to this along with China-Taiwan hot talks are heating up and might trigger anytime.
  4. Falling rupee against dollar: Indian rupee has been losing value against the US dollar. In fact, the Indian rupee recently reached its lowest point ever which makes gold costlier in the domestic market.
  5. Central election: Throughout the financial year, over 15 major countries are slated to hold their central elections, contributing to heightened volatility in commodity markets during this period.
  6. Gold is definitely in an overbought zone and some of that profits are now being taken out of the market, so it’s very much in consolidation mode. Support from the recent consolidation is at $2,227. A bearish trend will emerge if prices dip below this level. Until then, gold remains bullish. Despite ongoing price fluctuations, gold retains its status as a coveted investment and symbol of auspicious beginnings. We maintain optimism for Akshaya Tritiya this year, anticipating favourable returns similar to previous years.

The prevailing global economic conditions, coupled with central bank demand, de-dollarization trends, increased investment in gold, and the Federal Reserve’s accommodative stance on interest rates, collectively bolster the bullish sentiment for gold. This momentum could propel gold prices upwards towards Rs 74,740, with potential for sustained levels above this mark, opening avenues towards Rs 76,800 and Rs 79,000 levels in the fiscal year 2024-25. However, the next significant rally may only commence above Rs 73,300 or the $2,400 level. Hence, it’s prudent for investors and traders to exercise patience, monitor price movements closely, and seize opportunities accordingly.

(The author is Vice President Commodities at Mehta Equities)(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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