Gold price dips as dollar climbs to 20-year high. Should you buy?


Gold price extended loss for the second successive week, logging biggest monthly drop in April since September 2021. On Multi Commodity Exchange (MCX), gold rate for June contract closed at 51,760 per 10 gm mark on Friday whereas spot gold price closed at $1895 per ounce levels. According to commodity market experts, biggest reason for fall in yellow metal price was rising dollar index. They said that dollar index has sustained above 100 for entire week leading to US dollar (USD) climbing to 20-year high levels. Apart from this, US Fed’s upcoming meeting and Fed officials announcing interest rate hike by 50 bps in next week’s meeting worked as a break on any rise in gold price.

However, gold experts maintained that Russia-Ukraine war entering third month, rising commodity prices, Akshay Tritiya and ongoing wedding season in domestic market is expected to push demand for gold and hence any dip in gold should be seen as a good buying opportunity by gold investors. Gold experts said that till US Fed meeting, spot gold price is expected to remain in $1870 to 1960 range whereas MCX gold price would remain in 50,500 to 53,500 per 10 gm range.

Speaking on the reason for fall in gold price this week, Sugandha Sachdeva, VP — Commodity & Currency Research at Religare Broking Ltd said, “Gold prices were seen extending losses for the second consecutive week, while settling April with their biggest monthly drop since September. The biggest foe for gold turned out to be the US dollar, as it enjoyed one of the most remarkable winning streaks in April and marched to a twenty-year high. As the US Fed is racing to raise rates aggressively this year, the dollar continues to find favor with investors, while it has upset the strength seen in gold during the first quarter. However, prices witnessed some respite towards the end of the week as the recent data showed that the US economy unexpectedly contracted in the first quarter. This could lead to a synchronized global economic downturn as markets are already edgy over slowdown in growth in Europe and China.”

However, Religare Broking expert maintained that gold price outlook is positive. “Even though the markets are anticipating that the Fed would adopt a higher rate regime this year, which is suppressing gold, still several dynamics favor a positive bias for gold going forward. The precious metal is likely to garner buying interest as a safe haven as well as a hedge against inflation amid the geopolitical risks and runaway inflation. As per the latest data from the WGC, global gold demand increased 34 per cent year-on-year to 1,234 tonnes in the first quarter of 2022, mainly due to robust demand for ETFs which shows the precious metal is attracting a lot of investor interest,” adding, “Besides, lower prices around the auspicious occasion of Akshaya Tritiya are likely to boost the demand for gold. The precious metal has become synonymous with the word Akshaya-the eternal, which continues to be passed on from generation to generation as a symbol of wealth, pride, and affection.”

On the geopolitical front, the Russia-Ukraine war continues to rule headlines even as the conflict has entered its third month. The Russia-Ukraine war has worsened the global supply chain bottlenecks in a big way and is adding to the already soaring inflation graph. Also, as the European Union ban on Russian crude imports looks imminent, crude oil prices have witnessed recovery this week, while closing with their fifth consecutive monthly gain. Gold, which is touted to be a great hedge against soaring inflation would benefit from the situation.

Expecting high volatility on gold price ahead of US Fed meeting next week, Anuj Gupta, Vice President — Research at IIFL Securities said, “Spot gold rate is expected to remain in the range of $1870 to $1960 rang. As market has already discounted the 50 bps interest rate hike by the US Fed, $1870 per ounce support is expected to remain intact and the yellow metal may rebound post-US Fed meeting and go up to $1960 per ounce levels in spot market. On MCX, gold price has strong support at 50,500 and it is expected to go up to 53,500 per 10 gm levels in short term.”

Suggesting gold investors to buy gold in a staggered manner, Sugandha Sachdeva of Religare Broking said, “Heading forward, the yellow metal has tested its short-term support at 51000 per 10 gm (1890/ounce) mark, which seems to act as a cushion for prices and is likely to lead to a rebound. On the higher side, prices may witness an immediate hurdle around the 52,750 per 10 gm mark, whereas a move above the same could lift prices further higher towards the key resistance of 53,500 per 10 gm ($2000/ounce) mark. So, with eyes on the mentioned support, we recommend buying gold in a staggered manner around 51400 to 51000 per 10 gm zone and look for near term targets of around 53500 per 10 gm.”

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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