Gold rebounds over Fed rate cut bets: 5 key reasons behind yellow metal’s appeal in 2024; Time to buy?

Initial claims for state unemployment benefits increased 22,000 to a seasonally adjusted 231,000 for the week ended May 4, the US Labor Department reported on Thursday. The US dollar slipped against its rivals following the jobs report, making gold less expensive for other currency holders.

Also Read: Catch the glitter: Silver up 11% YTD on import volume, likely to outshine gold in near-term; How should you invest?

Gold, silver prices today

Spot gold last rose 0.95 per cent to $2,330.51 per ounce. US gold futures for June delivery rose 0.74 per cent to $2,339.40 per ounce. Spot silver rose 2.9 per cent to $28.136 per ounce, and spot platinum rose about 1.1 per cent to $982.25 per ounce. Spot Palladium rose 1.6 per cent to $967.28 per ounce.

Coming to domestic prices, gold futures last traded 0.02 perc cent higher at ₹71,652 per 10 grams after hitting a session’s high of ₹71,708 per 10 grams on the multi commodity exchange (MCX). The US dollar index fell 0.17 per cent to 105.363.

Analysts see a continued impact from the expectations for Fed rate cuts, or when those rate cuts may occur. The latest data indicates a slight weakening in the jobs market, boosting expectations that Fed interest rate cuts may happen sooner than previously expected, which supports markets like gold and silver.

Lower interest rates reduce the opportunity cost of holding the precious metals. Traders are currently pricing in about a 67 per cent chance of a rate cut by the US Fed in September 2024, according to the CME’s FedWatch Tool.

Gold Investment Demand

The World Gold Council’s Q1 2024 report highlights a three per cent increase in global gold demand, totaling 1,238 tonnes, the strongest first quarter since 2016. This growth was mainly driven by robust over-the-counter (OTC) market investments and consistent central bank purchases. Bar and coin demand also saw a three per cent rise.

However, excluding OTC transactions, demand dipped by five per cent to 1,102 tonnes in Q1 2024 compared to the same period last year. In 2023, ETF outflows and a slight decrease in bar and coin demand led to a total annual gold investment decline to a 10-year low of 945 tonnes, dropping by 244 tonnes from the previous year. 

Also Read: US Fed to hold rates at 23-year high-mark until inflation cools, slows pace of balance sheet runoff: 5 key highlights

The global economic growth, geopolitical tensions, among other factors are currently positioning gold as an appealing investment option for 2024. Here are five key reasons behind the strengthening appeal of the precious metal in 2024:

US Fed to global growth—5 key reasons behind yellow metal’s appeal in 2024

1.US Fed policy

The Federal Reserve has maintained a relatively restrictive stance on monetary policy throughout the current fiscal year, holding interest rates steady at 5.25-5.50 per cent for the sixth consecutive meeting. The central bank’s leaning towards easing, have reinforced expectations of rate cuts by year-end. Investors now anticipate only one rate cut for the year. 

‘’The potential for a rate cut in the latter half of the year may exert downward pressure on the dollar, potentially serving as a positive catalyst for gold prices,” said domestic brokerage firm Religare Broking in its report

2.US inflation

Fed chair Jerome Powell has cautioned that progress towards lowering inflation to the two per cent target is uncertain. Recent economic data also suggest a slower-than-expected cooling off of inflation. The latest consumer price index report in US reveals a 3.5 per cent year-over-year increase to 312.33 points in March 2024, following a 3.2 per cent rise in February. 

The escalating conflicts in the Middle East have contributed to rising crude oil prices, further fueling inflation. ‘’Given gold’s traditional role as a hedge against inflation, it is expected to remain attractive for investments in the coming months,” said the brokerage.

3.Geopolitical Tensions

Geopolitical tensions mainly appear confined in 2024 over the Gaza war’s regional impact, Syria’s rehabilitation with Hezbollah in the north and Hamas in the south, supported by Iran. However, tensions still persist between Israel and the wider Arab nations. 

Also, the possibility of the Ukraine-Russia conflict may linger due to the recent attacks by Russia in the gas pipelines of Ukraine, for supplying to the European Union markets. ‘’There are no indications that these tensions shall be over soon. Consequently, the safe haven demand shall persist in gold, leading to further appreciation in prices from current levels, according to analysts.

Also Read: Why gold price surged 13% in 2023? Experts list out these 5 reasons

4.Global Economic Growth

According to the latest World Bank’s Global Economic Prospects Report, the global economy may witness a poor performance by the end of 2024, the slowest half-decade of gross domestic product (GDP) growth in last 30 years. The risk of a global recession had eroded which hinted towards strengthening of the US economy that might lead to a better global economic position than the previous year.

Global growth is projected to slow for the third consecutive year, dropping to 2.4 per cent in 2024 from 2.6 per cent in 2023 while developing economies are projected to grow at 3.9 per cent. Declining growth will ultimately benefit gold prices as the safe-haven demand for bullion comes in action during turbulence time, according to Religare Broking.

Also Read: Akshaya Tritiya 2024: 5 things to buy on this auspicious day

5.Demand from Central banks

Central banks have long seen gold as a crucial part of their financial reserves, adding it for diversification as they manage domestic currencies. In 2023, they bought 1,037 tonnes globally, slightly less than the 1,082 tonnes in 2022, the highest since 1967. Currently, central banks hold about 20 per cent of global gold production, with one-third acquired in 2023 alone.

In Q1 2024, central banks acquired nearly 290 tonnes, surpassing the previous year’s record, with China leading followed by Turkey and India. This strong start indicates continued robust demand for gold in 2024, according to the brokerage.

How should you invest in gold? 

Analysts said that strong purchases by global central banks and geopolitical tensions provided support to precious metal prices. In April, the Chinese central bank increased its gold reserves by 1.9 metric tonnes, marking the 18th consecutive month of expansion. Similarly, other central banks globally boosted their reserves significantly in the first quarter of this year, bolstering prices. 

‘’Gold finds support around $2294-2278, with resistance at $2328-2342. Silver’s support is anticipated at $27.10-26.90, while resistance lies at $27.48-27.61. In terms of INR, gold has support levels at ₹70,910 and ₹70,760, with resistance at ₹71,340 and ₹71,520. Silver’s support is expected between ₹82,140 and ₹81,580, with resistance at ₹83,640 and ₹84,080,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.

Also Read: Why Akshaya Tritiya is the perfect time to invest in gold; recent returns speak for themselves — explained

According to analysts at Religare Broking, gold has been persistently climbing upward, registering an approximate 12.50 per cent gain on domestic exchanges thus far, following a robust performance last year. On the daily chart, prices are currently consolidating after a sharp rise, with Rs.70,000 per 10gms ($2280) acting as a pivotal level. 

Although buyers are hesitant to enter during this consolidation phase, a slight dip towards the 50 SMA at Rs.68,500 per 10gms ($2235-$2240) could present a favorable buying opportunity for the next leg of upward momentum.

On the weekly chart, prices have extended away from the 20 SMA and 50 SMA, prompting bulls to anticipate a pullback. A temporary pause in prices indicates a positive signal, especially since there’s a bullish flagpole pattern in play, which may extend further before prices resume their upward trajectory.

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, and not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.

Milestone Alert!
Livemint tops charts as the fastest growing news website in the world 🌏 Click here to know more.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it’s all here, just a click away! Login Now!

Published: 09 May 2024, 10:58 PM IST