Gold prices may surge to Rs 55,000 by year end; here’s what investors should do

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International gold prices slipped to a one-week low on Monday at $1,777 an ounce, weighed down by a surge in the US Dollar and mixed signals from the Federal Reserve on monetary policy. The US Dollar continues to gain strength along with higher bond yields and these two are the major dampeners for price movements in gold.

The FOMC (Federal Open Market Committee) had sent a hawkish message on raising interest rates in 2023 earlier in June. This was followed by Jerome Powell’s dovish testimony and lower than expected US inflation data which allayed fears of an early monetary policy tightening by the Federal Reserve.

In India, MCX Gold August futures traded flat to positive today. On the Multi-Commodity Exchange (MCX), August gold contracts were trading with a nominal gain of 0.02% at Rs 46,928 for 10 grams in the afternoon trade.

Gold prices in your city

Prices in the physical market remained lackluster today as the 22-carat gold price fell on Monday to Rs 46,160 for 10 gm from Rs 46,190 on Friday. In Delhi, the price of 22-carat gold stood at Rs 46,260 per 10 gm, while in Chennai, it slid to Rs 60 to reach Rs 44,460. The rate of gold in Mumbai was at Rs 46,160.

Gold import data

Gold imports zoomed to $6.91 billion (Rs 51,438.82 crore) during April-May 2021 due to the low base effect in the wake of the Covid-19 pandemic, according to the latest data from the Commerce Ministry released on June 27. However, demand for gold remained sluggish last week in the retail market despite the fall in its price.

Factors impacting gold prices

Experts say that gold prices have been subdued after the Fed’s policy statement. Apart from this, successful vaccination drive, trade truce between US and EU over aircraft subsidies, volatility in Yield and US dollar and few other factors weighed on the prices.

Although to tackle them there are tailwinds which have lent support to the prices, factors like rising inflationary expectations, rising debt, fear of the pandemic, Central banks loose monetary policy, stimulus measures, Central banks increasing their gold reserve, the trade war between US and China, geopolitical uncertainties and few other factors boost the overall sentiment for the safe have assets.

Gold outlook

Amit Sajeja, VP- Research, MOFSL

Gold prices witnessed a good rally in the past two months (i.e. April and May) giving a return of ~10%, boosting the overall confidence of the bulls. Although, after this positive rally, in the recent past we saw profit booking move from the highs of around $1900 levels. Gold prices dropped by almost 7% this month.

We might see some consolidation however, we continue to maintain our positive bias on gold for short to medium perspective. On the domestic front, we expect the metal to rally towards the immediate targets of Rs.50,000 by December 2021, followed by Rs.56,500 and above over the next 12-15 months.

Anuj Gupta, VP, Commodity and Currency research, IIFL Securities

For the very short term, we are expecting that gold price may trade lower on the back of strength in the dollar and rising bond yield. We saw a correction of more than 3% in gold prices in the last month, however, the dollar rose by 2%. Until year-end, I expect gold to touch Rs 53,000- 55,000 levels.