Informist, Monday, Oct 4, 2021

By Sayantan Sarkar and Anirudh Iyer

MUMBAI/NEW DELHI – Gold prices are likely to remain under pressure in October as yields on US Treasury bills are seen rising amid expectations that the Federal Reserve will tighten its monetary policy in the coming months, experts said. 

Demand for gold is likely to dip as higher yields on US Treasury bills earn more interest and increase the opportunity cost of holding the precious metal.  

In addition, demand from China is expected to remain weak as businesses will be closed in the country on account of the Golden Week, which began on Friday. The Asian giant is one of the biggest consumers of gold. 

Majority of the traders and analysts polled by Informist expect the bearish trend in gold prices to continue this month. The average of the forecasts of 11 poll participants sees futures contracts of the yellow metal at 45,244-47,843 rupees per 10 gm on the Multi Commodity Exchange of India, and at $1,700-$1,817 an ounce on COMEX.

At the time of writing this report, the most active October contract on MCX was at 46,472 rupees per 10 gm and the December futures on COMEX at $1,759.7 an ounce.

The dollar could continue to rise amid a strong recovery in the US economy, and expectations that Treasury yields may remain higher till the end of the year as the Fed prepares to tighten its ultra-accommodative policies are likely to weigh on gold prices, said Kshitij Purohit, lead currency and commodities at CapitalVia Global Research Ltd. 

In September, gold prices had fallen more than 3% as Fed Chair Jerome Powell said the central bank could announce the tapering of its bond-buying programme as early as November if the US economy continued to recover at its current pace. Powell also said interest rates may be hiked in 2022 itself. 

On the other hand, the global economic recovery could be jeopardised due to higher costs of fuel and energy. Higher fuel costs are also likely to increase inflation, which is supportive for gold. The precious metal is used by investors to hedge against rising inflation.

Brent crude oil on the Intercontinental Exchange had breached the $80-per-barrel mark last week for the first time since October 2018, as supply constraints from the US continued to boost prices. 

"If the energy crisis worsens, gold may be saved from further declines in the short term," said Purohit. 

Meanwhile, gold demand in India is likely to be robust during the upcoming festival season this month as retailers and jewellers are expected to record higher footfalls than last year. 

India is one of the top consumers of gold and the upcoming festivals of Dussehra and Diwali are considered auspicious, which leads to greater demand for the precious metal. There is also pent-up demand from buyers as more states ease COVID-19 restrictions. 

Experts say jewellery demand in India will be robust till December, as festivals will be followed by the wedding season in the country.

Following is a summary of the poll by Informist on gold prices in October and details of estimates by respondents, in alphabetical order:

End

US$1 = 74.33 rupees

Edited by Snigdha Kuttikat

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