Gold prices continued to rally on Thursday, after hitting a record high in the previous session, as the US Federal Reserve commenced its rate-easing cycle after more than four-and-a-half years.
In futures trading on the Multi Commodity Exchange, the October gold contract was at Rs 73,235 per 10 gram, up 0.2% from the previous close, at the time of going to press. During the day, the contract rose by Rs 565, peaking at Rs 73,620.
Prices in the international market have also been hovering near their lifetime highs due to demand optimism amid surging geopolitical tensions, feeble global growth outlook and lower interest rates. Spot gold on the Comex hit a record high of $2,620.35 per ounce soon after the Fed trimmed rates by 50 bps.
The Fed move, which lowered interest rates to the range of 4.75%-5%, is part of a broader anticipated easing cycle, with two more cuts being expected in 2024. This, combined with a weakening of the US dollar, has increased gold’s appeal as a safe-haven asset.
Jateen Trivedi, vice president and research analyst at LKP Securities, said: “Gold prices gained above $2,585 on the Comex, and MCX saw a rise towards Rs 73,500 with gains of Rs 475 due to the weakness in the dollar on the back of Fed’s policy curve, pumping liquidity which boosted gold prices.”
Unmesh Kulkarni, managing director and senior advisor, Julius Baer India, said, “The focus of the gold market has fully shifted from Chinese investment demand and central bank buying to the outlook for interest rate cuts in the West. Expectations of lower interest rates are propping up the sentiment in the futures market and luring safe-haven seekers back into the physical market.”
“Since gold is traditionally viewed as a hedge against inflation, investors’ anticipation of rising inflation due to lower rates tends to further lift its investment demand and prices,” said Hareesh V, head of commodities at Geojit Financial Services. The surprise rate cut suggests that the Fed is seriously considering the threat of an economic slowdown which could boost the safe-haven demand for gold in the immediate run, he added.
Kulkarni said lower interest rates alone are not sufficient to push gold prices higher. “A recessionary environment during rate cuts is generally positive for gold. However, rate cuts without a recession are generally not positive for the yellow metal.”