After creating a base around the 1630-1640 levels, gold prices broke above the $1720 level. Over the past 2-3 weeks, gold was trading in a narrow range but now gold price is trading at a 4-month high and has managed to cross the $1800/oz level. Emkay Wealth Management, the wealth management and advisory arm of Emkay Global Financial Services has released a note on gold, price outlook, and the reason for the rally in the precious metal prices given the current setup.
The major reason for the rally in the yellow metal is the commentary by the Fed indicating their dovishness on the monetary policy. Gold prices may trade in higher ranges with 1730-1740 as the base, and could target 1830 and 1860.
Though a rally in gold prices has been witnessed, the same may be restricted due to future rate hikes. The interest rate in the US is still not at its peak. The Fed may continue to hike rates well into 2023 as the inflation is still at around 8% level, and far off the target of 2%.
Other global central banks hiking rates may also restrict gold price rally. Also, in a scenario of a rising dollar, it is less likely that gold would be able to make much headway to higher levels. But moderation in central bank rate hikes could be beneficial for the yellow metal.
Gold demand is reported to have been on a firmer footing in Q3 of this year. The demand came mainly from central bank buying, amounting to 400 tonnes for the quarter and retail consumers. The easing of covid related restrictions in China helped push up demand in China and retail jewellery demand in India too supported the markets.
Jewellery consumption rose to 523 tonnes, a 10 % year-on-year rise despite the adverse sentiment. Overall demand growth was 28% on a Y-o-Y basis. But the 227 tonnes of ETF outflows reflected the underlying weak sentiment.
Gold has historically performed well during times when the stock market is at its most pessimistic. For all global economies, there is a link between the price of gold and the stock market. When the stock market is performing poorly, sales of gold coins, gold bars, and gold ETFs are at their highest.