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Gold may move towards $2800/ounce says Angel One
Gold has demonstrated significant growth in the year to date. Spot gold prices have surged approximately 22%, while MCX gold futures have increased by about 14%. These double-digit gains in 2024 clearly indicate that precious metals, particularly gold, have become a favored asset class for global investors.
In the most recent month, spanning from July 31 to August 23, 2024, gold prices have continued their upward trajectory. International markets saw a 2.61% increase, while the MCX experienced a more substantial 4.01% rise during this period.
Central Banks add gold in these uncertain times
Gold has a special place in the coffers of the central banks and this principle is applicable to every other central bank across the globe. The key guiding principle behind allocation of gold as a part of the central bank portfolio is constructed according to three guiding principles of safety, liquidity and return.
Accordingly, central banks have been accelerating their gold purchases to above 1,000t per year in 2022 and 2023 and the voracious buying has continued into 2024 in the face of the renewed gold price rally. Global official gold reserves rose by a net 290t in the first quarter of 2024.
The highest Q1 total in data series back to 2000; 1% higher than the previous Q1 record set in 2023 (286t) and 69% more than the five-year quarterly average (171t). The chart above clearly shows the interest of global central banks for their accumulation of gold in 2024.
Interest rate cuts by the US Central banks
According to recent data, the Federal Reserve interest rate in the United States is 5.25% to 5.50%. In the September meeting during his speech at the Jackson Hole Economic Symposium the US Federal Reserve Chairman Jerome Powell gave clear signals that the central bank will cut its interest rate.
Powell also stated that the US labor market is cooling quickly following the softer jobs report from July and the downward revision to payrolls in its latest series. Moreover, the FOMC has gained further confidence that inflation is slowing to the central bank’s 2% target, warranting a clear view that it is time to adjust monetary policy to less restrictive conditions.
The speech followed minutes from the Federal Reserve’s last meeting, which suggested that most policymakers agree that it will be appropriate to lower the Federal funds rate this quarter. Interest rate cuts and gold prices have an inverse relation and the focus of the markets will now be on how the US FED plays its cards on the interest rates moving forward.
The next big event that will drive gold prices.
With double digit gains already in the year 2024, the important event that will drive gold prices further higher will come out of a combination of events starting from interest rate cuts in the US and further interest rates trajectory in Japan along with the outcome of the US elections.
The chart structure of gold prices indicates further moves higher towards the $2800/ounce mark. Accumulation zones for gold stands at around $2300/ounce mark for long term investors. Prices on the MCX, can be accumulated at around Rs.68000/10 gms mark for a target higher towards Rs. 78000/10 gms mark by the end of 2024.
What next?
With the global output to contract and the economies in a deeper recession than most anticipate, gold as an asset class is a safe bet for investors across the globe. Although, the physical demand has declined drastically due to the restrictions and lockdowns, the activity of global central banks and their net purchases of gold signal that uncertainty will continue for most of 2020.
The investment demand as seen in the net additions of ETF holdings also signals that gold will shine for much longer time even if the pandemic is under control.
We see gold prices in the international markets to move higher towards $1850 in a month time frame while MCX gold prices might move higher towards Rs.50000/10 gms mark. Till then keep buying gold, if not in physical form, but in digital form.
Source: https://www.financialexpress.com/