Informist, Tuesday, Feb 7, 2023
By Sayantan Sarkar
MUMBAI – After starting the year strong, gold prices may struggle to maintain the momentum in February due to the dollar's appreciation against major currencies and worries that the US Federal Reserve will continue to increase rates in the future.
In the domestic market, the rupee's depreciation against the dollar and high gold prices are likely to affect demand from jewellers in the short term, said Kumar Jain, spokesperson for the India Bullion and Jewellers Association.
On the Multi Commodity Exchange of India, gold futures are seen at 55,692-59,664 rupees per 10 gm, according to an average of estimates of seven brokerage firms polled by Informist. On the COMEX, gold is seen at $1,847-$1,976 an ounce, according to the average of seven estimates.
Last month, gold prices had risen by 3.7% on MCX and by over 5% on COMEX.
Last week, the Fed slowed the pace of interest rate hikes by raising the federal funds rate by 25 basis points, but did not give a timeline as to when interest rates will peak in the US.
High interest rates are likely to reduce liquidity in the economy, leading to subdued demand for the precious metal in the world's biggest economy.
In 2022, the US central bank had raised interest rates by 75 bps consecutively at four separate policy meetings before slowing the pace of its increases to 50 bps in December. This had raised hopes that the rate-hike cycle was coming to an end. However, with the US economy showing resilience, it is likely that the Fed will continue with its tightening, which may prove bearish for gold demand. The next Federal Open Market Committee meeting will take place on Mar 21-22.
Gold prices fell sharply on Friday after US non-farm payrolls data, which was above market expectations. The payroll figures indicate the number of persons employed in the US economy.
"Markets interpreted this strong jobs data as a sign that the Fed will need more rate hikes within the current cycle," Dailyforex.com said in a report.
Back home, high gold prices are expected to keep buyers away from the stores. On MCX, the most-active April contract hit a lifetime high of 58,826 rupees per 10 gm last week after the government kept import duty on the yellow metal unchanged in its Budget announcement.
Jewellers and industry participants were clamouring for a cut in import duty since last year. However, the government instead raised the import duty on silver to align it with gold. This lifted gold prices to an all time-high.
"High taxes will impede efforts to make gold an asset class, particularly at a time when prices have risen globally. Moreover, the thriving grey market has diluted efforts to reduce cash transactions and penalises organised and compliant players," said Somasundaram P.R., regional chief executive officer-India at World Gold Council.
However, some experts believe that the rupee's depreciation against the dollar and high domestic rates may push gold prices to 60,000 rupees per 10 gm on MCX for a brief period.
"Overall, it (April gold contract on MCX) might test a level of 60,000 rupees, but before that, it could correct towards 56,800-56,500 rupees, which would be a good level for accumulation," said Manav Modi, research analyst at Motilal Oswal Financial Services.
Currently, the April gold contract on MCX is at 57,090 rupees per 10 gm. The same-month contract on COMEX is at $1,886.5 per ounce.
Following is a summary of the poll by Informist on gold prices in February and details of estimates by respondents:
ANALYSTS/TRADERS | DOMESTIC PRICE | INTERNATIONAL PRICE |
| Geojit Financial Services | — | 1,742-1,965 |
HDFC Securities | 56,750-59,900 | 1,880-2,000 |
| Kedia Comtrade | 55,800-59,300 | 1,865-1,954 |
LKP Securities | 57,000-60,500 | 1,900-2,000 |
| Mehta Equities | 55,800-57,950 | 1,820-1,922 |
| Motilal Oswal Financial Services | 55,000-60,000 | — |
| Dailyforex.com | — | 1,830-1,920 |
Reliance Securities | 54,500-60,000 | 1,890-2,070 |
Umedmal Tilokchand Zaveri | 55,000-60,000 | — |
Median | 55,800-60,000 | 1,865-1,965 |
End
US$1 = 82.70 rupees
Edited by Ashish Shirke
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