Gold prices experienced a period of lackluster trading recently, marked by profit-taking activities, primarily due to dwindling expectations of interest rate cuts by the US Federal Reserve. The shift in sentiment came after the release of minutes from the latest Fed policy meeting, indicating a more hawkish stance among policymakers, suggesting a reluctance to lower rates in the near term.
Concerns escalated as the minutes revealed that Fed officials anticipate a prolonged period before they are confident that inflation will steadily approach the target of 2 percent. This sentiment resonated across markets, resulting in subdued trading of MCX Gold on Friday, May 24, as it mirrored weak global cues. International markets witnessed gold prices hitting a two-week low, signaling the potential for their most significant weekly decline in nearly eight months.
As of 11:45 am, MCX Gold traded marginally lower at ₹71,565 per 10 grams, reflecting the prevailing cautious sentiment among investors.
The decline in gold prices is primarily attributed to profit booking, as investors recalibrate their expectations regarding US interest rate policies. Rahul Kalantri, VP of commodities at Mehta Equities, highlighted that this downward trend stems from revised expectations of Fed rate cuts following recent economic indicators in the US.
“S&P Global’s May flash readings, encompassing manufacturing, services, and composite PMIs, suggest an uptick in US economic activity. Concurrently, the lower-than-anticipated figures for jobless claims indicate a robust labor market. These factors, coupled with the Fed’s minutes from the May meeting, hinting at concerns over persistent inflation, have dampened expectations of rate cuts,” observed Kalantri.
Furthermore, the strengthening US dollar and rising bond yields have diminished gold’s appeal as a safe-haven asset. Simultaneously, the buoyancy in equity markets has diverted investor interest towards riskier assets.
Looking ahead, Naveen Mathur, director of commodities and currencies at Anand Rathi Shares and Stock Brokers, foresees continued pressure on gold prices in the short term, attributed to reduced possibilities of rate cuts amid impending US elections and stubborn inflation. However, he believes that geopolitical tensions could offset this downside risk in the coming months, with long-term fundamentals supportive of gold prices, potentially leading to new highs in the next one to two months.
Kalantri and brokerage firm SMC Global Securities anticipate support levels for gold prices in both international and domestic markets, while advising short-term traders to adopt a cautious approach and long-term investors to remain vigilant for favorable entry points. Despite short-term fluctuations, the overall outlook for gold prices remains bullish, suggesting a positive trajectory in the long run.
