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Gold's future hinges on Fed rate cuts and dollar weakening, says Emkay report

May 21, 2024

NEW YORK (May 21) Gold will be able to sustain at higher levels only if the US Federal Reserve cuts rates and the US dollar starts declining against currency majors, said brokerage house Emkay in a recent note.

"Gold prices moved up from the $2,050 base, where it was hovering around for a long time, to a new range mainly due to the tensions that emerged in the Middle East, and also on the back of the Fed stance in relation to the policy rate. The geopolitical situation has de-escalated to the comfort of the markets, though further escalation in geopolitical tension cannot be ruled out. While gold may still continue to be resisted at the current levels close to $2,370-$2.390, the probability of any deeper corrections looks weak due to central bank demand and retail demand," noted the brokerage.

As of April 30, 2024, physical gold has delivered a CAGR of 19.42 percent in a 12-month period and absolute returns of 6.78 percent (1-month period) during the month of April.

Similarly, Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities, also stated that gold prices have reacted positively in recent days due to expectations of sooner interest rate cuts, following a drop in US inflation data after a long period of sideways to higher rates. This shift has led to speculation that the Federal Reserve might cut rates starting in September.

Additionally, Iran's President's helicopter crash prompted a strong push in gold prices on Monday due to fears of renewed tensions between Iran and Israel. However, prices have given up some gains today as no definitive cause for the crash has emerged. Gold is expected to remain volatile, with prices likely to range between ₹71,000 and ₹75,000 in the near term, Trivedi predicted.

On Tuesday, May 21, gold prices declined during the morning trade session in the domestic futures market, and international gold prices eased from record-high levels.


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