International and domestic gold prices are at record high levels. This fresh surge in the price of the yellow metal has been driven mainly by the 50 basis points (bps) cut in interest rates announced by the US Federal Reserve recently and expectations of more cuts by the American central bank. Besides, geo-political tensions arising from the Israel and Hezbollah conflict and the ongoing Russia-Ukraine war have also increased the demand for gold. One factor which has been supporting gold prices for the past many months is the continued buying by central banks across the globe.
With gold prices expected to rise further, analysts suggest investors should now look at increasing their fund allocation to the yellow metal as part of their asset diversification strategy.
The recent rally
In the international market, gold price touched a record high of $2,685.42 per ounce on September 26. Domestically, MCX spot gold prices in Mumbai jumped to a new peak of Rs 75,750 per 10 grams on September 26. MCX Gold Futures contract for October touched a lifetime high of Rs 76,000 per 10 grams on September 25. In the current year, gold prices have jumped around 30 per cent internationally.
Driving the surge
The recent rally in gold prices was seen after the US Federal Reserve lowered the interest rate by 50 basis points (bps) to the 4.75-5 per cent target range. A basis point is one-hundredth of one percentage point. This interest rate cut – the first since early 2020 – resulted in weakness in the dollar and led to higher demand for the yellow metal.
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“Gold and the dollar are inversely related. When the dollar weakens, people buy more gold,” said Hareesh V, Head of Commodities, Geojit Financial Services.
Festive offer
“When growth slows down, and the US Fed cuts interest rates, investors globally want to move to safer havens like gold. We believe this trend may not change,” said Himani Shah, Co-Fund manager, Alchemy Capital Management.
Apart from the US Fed action, the uncertainty due to ongoing tensions between Russia and Ukraine and the Israel-Hezbollah conflict has made investors rush towards safer commodities, including gold.
Source: Indianexpress.com
