Gold futures likely to fall upto Rs 46,000 per 10 grams by September end: Analysts

On the MCX, the front month gold contract for August delivery was trading at Rs 50,600.00 per 10 grams, up Rs 225.00 (0.45 per cent) at 04:48 PM on Friday while the October delivery gold contract was Rs 50,817.00, up Rs 211.00 (0.42 per cent).

The data released by the US Bureau of Labor Statistics earlier this month showed the CPI inflation rate accelerated to 9.1 per cent in June, the highest in nearly 41 years. Further, the US Federal Reserve is expected to tighten the monetary policy in the upcoming meeting on July 26-27.

“We’ve seen gold prices take a negative impact whenever US Fed has increased interest rates. In Indian terms, we can expect some larger corrections towards Rs 46,000 as Fed is insistent to hike interest rates to settle higher inflation,” Tapan Patel, senior analyst (Commodities) at HDFC Securities told indianexpress.com.

Patel further explained that the US Fed hiking interest rates have made gold prices go downwards, while simultaneously, the US dollar and US bond yields have surged, thereby emerging as a better investment option and negatively impacting gold which does not yield interest.

Discussing the further possibilities for domestic gold futures, Patel said, “The rupee will start appreciating once the RBI hikes the interest rate, after that period we can expect the rupee to appreciate towards the Rs 78-mark, as our fundamentals are stronger in comparison with other countries, which will be another push for gold prices at MCX because rupee appreciation will also lower the value of gold.”

Ravi Singh, vice-president and head of research at Share India Securities, said that in the next couple of months, there can be some profit booking on gold because gold prices are on the higher side.

“We can say that the next possible target is around Rs 49,500 to Rs 50,000 levels, in this case, support is around Rs 49,800 and resistance is around Rs 50,800,” he said.

On being asked about the possibilities of the immediate support levels being breached once the Fed interest rate result is out later this month, Singh agreed that the support level for gold around Rs 45,500-46,000 levels is possible.

Explaining his point Singh said, “I think Rs 45,500-46,000 support levels are possible, for there are still geopolitical concerns around the world, also the fact that Indian rupee is an important factor, which is continuing to hit Rs 80-per dollar mark, hence raising concerns about inflation.”

He said that the situation can be volatile with the ongoing high inflation rates, persisting geopolitical concerns and anticipation of the US Fed hiking their interest rates by a higher margin.

“Overall, it is expected to see some range-bound activity in gold,” he added.

Elaborating on the current market condition, Singh feels that gold is currently not attractive enough and there are other options that have started to look attractive.

“With bond prices looking more attractive after the US Fed interest rate hikes, most of the equity players and even the gold players have their money invested in US bonds, which is one of the reasons why gold is not the center of attraction at the moment,” he said.

While some analysts feel that gold prices may go down to Rs 46,000 levels, there are a few analysts who believe that the precious metal will be able to hold its ground despite the aggressive tightening of the monetary policy in the world’s biggest economy.

Ajay Kedia, Managing Director at Kedia Advisory, believes that the upcoming rate hike by the US Fed has already been discounted in the market.

In its previous Federal Open Market Committee (FOMC) meeting, Fed Chairman Jerome Powell had indicated a rate hike of 50 bps or 75 bps in the next FOMC meeting.

Talking about the upcoming rate hike and its impact on gold trade, Kedia said, “Unlike RBI, US Fed does not have an intention to surprise the market, and so I am expecting a rate hike of 75 bps which has already been discounted in the market.”

While Kedia agreed that the US interest rate hikes has taken a toll on the gold trade in the past months, he does not anticipate the US Fed to radically raise interest rates after its July meeting.

He explained that the US has been dealing with extreme rate hikes but hasn’t had to face job losses or shutting down of businesses despite the dollar index being high. Hence, it is expected that after the upcoming rate hike, the interest rates will not be raised more than 25 to 50 bps, which would eventually result in gold getting a good gain.

Further discussing the rupee depreciation in recent days and its impact on gold trade on MCX, Kedia said that the RBI and the Centre are taking all possible steps to curb the rupee depreciation, including the steep hike in gold import duty by 5 per cent which has supported MCX gold.

With respect to gold demand, Kedia expects the demand for the precious metal to go up in the coming months.

Navneet Damani, Senior Vice President and Head of Research (Commodities & Currency) at Motilal Oswal Financial Services, told indianexpress.com, “We are expecting the support levels for MCX Gold to be around Rs 49,500-50,000, but we are not expecting a major fall from here on. Any lower rate hike from here could be an added advantage for gold.”

Damani feels that the coming months may get the market accustomed to the rate hikes, and the speed of the rate hikes might start to cool off.

Talking about the future possibilities for gold trade and the indications received in regards to the ease of other commodities, Damani said, “We have seen a decent correction in energy prices, primarily crude oil and natural gas, also the Agri prices have corrected about 20-40 per cent from their peak. Further, as the inflation numbers are likely to not be as robust as we’ve seen in the past, that gives us an indication that some bit of stability would come to the gold prices as well.”

(The author is an intern with indianexpress.com)