If you had invested in gold on Akshaya Tritiya in the last 10 years…
What makes an auspicious occasion even better is that it brings a lot of gifts and investments, and the most common being the safe-haven asset i.e. gold or silver. Indian weddings, birthdays and religious holidays are among the top three events eligible for buying gold. As we approach the season of prosperity, the Akshaya Tritiya Festival, it is very important to see how gold prices have developed so far and what does it look like from here .
Several factors have contributed to gold’s movement over the past few years, with the pandemic being one of the main ones. Although, from now on, we point out three major factors to watch in assessing the direction of gold, namely geopolitical tensions, inflationary concerns and central bank policies.
As the pandemic buzz began to fade, market participants were hit with sudden updates regarding Russia’s invasion of Ukraine, which quickly rose supporting metal prices. There is currently a climate of uncertainty in the market which is keeping market participants on edge. The multiple events of peace talks between the two countries have yet to yield positive results, and Russia seems determined to make Ukraine capitulate, the former has also warned Finland and Sweden that if they join NATO , they might even feel their anger.
Market participants shifted their focus to the Fed’s policy meeting and their hawkish stance; although updates regarding geopolitical tension and fear of a rise in Covid cases in China will remain important to watch.
Inflationary concerns have remained a theme for the market since last year, and geopolitical tensions have acted as fuel on already inflamed prices. Currently, the US CPI is around 8.5% and unless and until there is news of a war situation setting in or easing supply chain disruptions, it there will be concerns about this.
Central banks have taken an aggressive stance on interest rates. After a 25 basis point rate hike at the March 22 meeting, market participants now expect at least two 50 basis point rate hikes this year. The Fed also announced its intention to reduce its balance sheet by about $95 billion a month, to reduce its bloated balance sheet by $9 billion in a bid to ease price pressures; which could weigh on metal prices. These expectations also influenced a strong move in the dollar and the yields also contributed to the overall drop in metal prices.
Amid higher prices since the start of 2022, market participants, especially on the home front, have refrained from buying physical metal. There are some developments on the supply and demand scenario, such as the CEPA agreement between India and the United Arab Emirates which will come into force on May 1, there is still a lack of clarity on its overall impact although that in one year around 200 tonnes of gold can be imported from the United Arab Emirates. to the tariff quota, i.e. a tariff reduction quota, an import duty 1% lower than what India charges to the rest of the world. And in return, the 5% export duty on jewelry to the UAE will be completely removed, which could create a real boost when it comes to the physical market. On the other hand, agriculture also plays an important role in the demand for gold, and Skymet has predicted a normal monsoon for this year, which could also provide a basis for the demand.
India’s gold demand fell 18% to 135.5 tonnes in the first three months of this year, mainly due to a sharp rise in prices, according to the WGC. While in Q1’22, total gold recycled in the country jumped 88% to 27.8 tonnes. After hitting a record high in Q4’21, jewelry demand in India fell 26% YoY in Q1 to 94t. Underlying consumer sentiment is improving, which should also be positive: the Reserve Bank of India’s consumer confidence index fell from 64.4 in January to 71.7 in March. However, demand could face headwinds in the event of further increases – or heightened volatility – in the price of gold, while widespread inflation could also dampen demand by compressing disposable incomes.
The price of gold has historically risen slightly during Akshaya Tritiya as seen in the chart. Although amid growing anticipation of aggressive Fed policy this year, we may see some pressure on metal prices. We also saw earlier that market participants tend to discount future expectations quite early, especially from the Fed, which we can also see in prices. Similarly, market participants discounted a 50 basis point rate hike at the May meeting, so even with updates on Russian-Ukrainian tensions, gold bulls are not finding enough strength.
Prices could form a wide range until and unless the overall uncertainties are resolved, so some recovery could be seen in prices, although we believe these upside rallies may not hold and should be used to exit long positions. A cautious approach is advised until market participants get a sense of the impact of the rising interest rate cycle and geopolitical uncertainties on the market and overall economic numbers. However, we continue to maintain a positive bias on silver and suggest building positions on the dips. In addition to the safe haven, silver also enjoys support as an industrial metal, creating a positive scenario for the white metal.
Spot Gold after hitting near record highs is witnessing selling pressure on the upper range, holding solidly around $1900. Keeping in mind the aggressive attitude of the Fed and its impact on inflation, we could see some weakness in the coming quarters. Going forward, gold on Comex could trade in the range of $1800 to $2050 for a 12 month outlook. On the home front, prices could trade in a wide range with critical support at Rs.50,000 followed by 48,000 and 46,500, while upside rallies towards Rs.55,000 would be opportunities to break out of the lows. long positions.
Our previous silver target of Rs.70,500 followed by Rs.72,250 on the home front was met recently, but our bias continues to favor the bullish silver narrative. We advise buying silver on major dips towards Rs.64000-65000, with potential upside towards Rs.80000 followed by 88000. Similarly, on COMEX, silver prices are likely to trade higher high towards $26.45 and $27.15 with strong support placed at $24.20 and $23.70. . With the buy dip strategy, the rally could extend to $30 on Comex over the next 12 months.