The rise in interest rates due to inflation worries and the dollar’s stinging blows hit gold bullion, which itself did not yield any gains. The yellow metal’s appeal as a hedge against inflation has also lost its appeal.
Sugandha Sachdeva, Vice President, Commodities and Currency Research,
Gold prices have been on a downward trajectory since early July, with prices falling sharply, Broking said.
“Gold is under pressure from rising global interest rates and an upward dollar, which hovers near two-decade highs, undermining gold’s appeal,” she added. Tapan Patel, Senior Analyst (Commodities),
Gold prices are expected to come under further pressure as the dollar strengthens amid political conflict in Europe and the upcoming U.S. Federal Open Market Committee meeting, the securities said.
“The Fed’s stance against record inflation and a series of rate hikes is likely to continue to underscore demand for non-interest-earning assets like gold,” he added.
Fed meets expectations The U.S. Federal Reserve is expected to meet next week, July 27-28, with traders expecting a 75 basis point rate hike, not a full percentage point.
Gold’s slide may be paused as central banks may temper interest rate hikes, market experts said. This will weigh on the dollar and give gold some respite.
Religare Broking’s Sachdeva said the Fed is likely to raise rates by another 75 basis points at its upcoming meeting to combat runaway inflation already discounted by the market. “Global growth concerns and concerns about widespread inflationary pressures are likely to support gold prices at lower levels,” she added.
What should investors do Experts suggest that the devaluation of the rupee has caused a wide divergence in international and domestic gold prices. They expect some recovery if gold holds above key support levels and recommends avoiding bears.
“We expect gold to test support around 47,800 rupees per 10 grams, with COMEX spot support near $1,620 and above $1,676 an ounce,” said HDFC Securities’ Patel. However, he suggested that investors should short gold with stops at Rs 50,500 and supports at Rs 49,500 and Rs 48,900 in the near term.
Instead, Rahul Kalantri, vice president of commodities at Mehta Equities, advises investors or traders not to short gold, but to buy at current levels.
“This is a good level to buy gold in the short term with targets of Rs 50,500 and Rs 51,000 with a stop loss of Rs 49,350,” he said. “One should only short below $1,665 in the international market and Rs 49,350 in the domestic market,” he added.