As the banking crisis in the United States and Europe worsens, traders are looking for safe haven investments, and gold is at the top of their list. On Monday, the yellow metal briefly reached Rs 60,000 for the first time on the MCX before falling back to around Rs 59,700.
Analysts following the bullions say that not only the contagious banking crisis but also rising inflation and interest rate hikes are adding to gold’s luster. The falling rupee, on the other hand, is contributing to the rise in gold prices.
Gold, which was trading around Rs 55,200 just ten days ago, has risen by more than 8% since then. The banking crisis caused by Silicon Valley Bank, Signature Bank, and now Europe’s Credit Suisse has driven up the price of gold.
According to NS Ramaswamy, Head of Commodities at Ventura Securities, bullion is backing its beta on the banking crisis. As the banking credit crisis continued to grow and spread, last week’s insane rally demonstrated the fundamentals of safe haven and store of value.
Gold reaching Rs 60,000 in rupee terms is not surprising, he said, with local currency at Rs 82.45 supporting the conversion of Comex gold to $1,980 an ounce. “Markets have assessed the impact of the Federal Reserve’s and other major central banks’ emergency liquidity measures in response to banking crisis fears.”
Prithviraj Kothari, MD and CEO of RiddiSiddhi Bullions (RSBL), added that the Federal Reserve’s consistent interest rate hikes have also raised fears that the US economy will enter a deep recession. Whatever course the Fed takes now could be beneficial to gold.
“This week is critical for precious metals prices as the US Federal Reserve meets. If the Fed stops raising interest rates, gold should benefit because it limits the dollar’s short-term rise. If inflation persists and the Fed is forced to resume tightening, the economy will suffer greatly, and gold will see an increase in safe-haven demand “He stated.
When there is a crisis of confidence, people rush to safe havens like gold for protection, particularly in the financial and banking systems. Gold is arguably the most well-known safe haven in the world, and unlike other assets, it does not lose value.
Market participants believe gold has a lot of steam left in it ahead of the Fed’s meeting on Saturday. The rally could continue if the US central banker becomes dovish and suggests a pause or slower rate hikes. However, if the hawkish stance persists, gold may see some profit-taking.
According to Abhijeet Banerjee, Senior Research Analyst – Commodities at Religare Broking, markets are now watching the FOMC meeting for their stance on interest rates and guidance for future action.
“It could keep the previous metal volatile in the following sessions, but the trend will be positive unless we see prices closing below the Rs 58,000 level. One can eye Rs 60,500 as the next target zone,” he said.
According to Ramaswamy of Ventura Securities, the direction is towards the psychological barrier of $2,000, or Rs 60,800 in rupee terms, which acts as a strong resistance, with Rs 59,750 remaining the support ($1960). “We can see a continuation of momentum towards the psychological barrier of $2,000.”