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Monsoon could push gold price higher as rural demand picks up. Where is gold headed?

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In the past many weeks, gold prices have been stuck in a narrow range. In the international market, gold prices have been in the range of $1,290 to $1,350 per ounce since April. Domestic gold prices have also displayed a similar trend. Gold prices in Delhi have been around Rs. 32,000 per 10 grams (24 carat) during this period. Are gold prices expected to break the current trend anytime soon? NDTV here brings to you what experts think about the current trend in gold prices. (Also read: Physical Gold, Gold ETFs Or Gold Bonds: Where To Invest Your Money?)

Here are five factors affecting the current gold price:

  1. The Reserve Bank of India (RBI) has hiked the repo rate – the key interest rate – for the first time in more than four and a half years. In its latest monetary policy statement, the RBI pointed out selling pressure on gold prices due to strength in the dollar.
  2. The Federal Reserve, the American central bank, changed its tone to hawkish – announcing a much-awaited rate hike and two additional rate hikes this year than anticipated earlier.
  3. The European Central Bank (ECB), on Thursday, decided to end its 2.6 trillion euro bond purchase programme by year-end but signalled its first rate hike would come later than markets had expected as inflation is rising only slowly and economic growth is softening.

“Though the recent rate hike led to some decline in (gold) prices, the prices have recovered fairly soon as there was a lot of accumulation seen in the precious metal in the last few days, and as the dust has settled, prices are taking their own course and trying to reclaim higher levels, akin to all recent rate hikes,” Sugandha Sachdeva, vice president-metals, energy and currency research at Religare Broking, told NDTV. (Also read: Diesel Prices Slashed Today, Petrol Prices Remain Stable)

She expects global gold prices to gain momentum towards $1,325 an ounce in the immediate short term, with a strong base in sight at $1,280 per ounce mark at COMEX. “Once the crucial hurdle of $1,325 an ounce is taken out, it will open up room for further move towards $1,365 an ounce mark,” she said.

  1. Meanwhile, US-China trade worries continue to underpin global gold prices.

“North Korea’s commitment to denuclearize and a soft approach from the US is the latest trigger… the ongoing tussle between US and China over import duty and any unseen or sudden news that has the potential to raise geopolitical tensions may help gold prices spike. But one thing is almost sure that we are not going to see a huge rally from here anytime soon,” said Gaurav Katariya, Research Head- Commodities – Arihant Capital Markets.

  1. Oil investors have been nervous ahead of the key OPEC summit in Vienna in the coming week. No increase in supply by the OPEC is likely to keep crude oil prices high and affect the rupee against the US dollar, say analysts. “Ahead of the OPEC meeting next week, the rupee is expected to be under pressure. With all indicators of dollar strengthening, rupee could see 68.15 levels but on intervention strengthen to 67.40/50. In case OPEC does not agree to increase supply, the rupee can see a further fall,” said Salil Datar, CEO and executive director, Essel Finance VKC Forex.

As far as domestic markets are concerned, demand is likely to pick up in the second half of the year from rural buyers, amid adequate monsoon rainfall which will support the prices, said Ms Sachdeva of Religare Broking.

Monsoon rains, vital for Asia’s economy, hit Kerala at the end of May, a few days earlier than normal, brightening the outlook for agricultural and economic output.

Weather office IMD or India Meteorological Department has retained its monsoon forecast at 97 per cent of a long-term average. IMD defines average, or normal, rainfall as between 96 per cent and 104 per cent of a 50-year average of 89 cm for the entire four-month season beginning June. However, Radiant Solutions, a private US-based weather forecaster, expects monsoon to make slow progress over the next two weeks and delay the onset of crucial rains over north-western parts of the country.

Speaking on monsoon, Katariya of Arihant Capital Markets said, “Rural demand for gold will see a boost only if monsoon doesn’t break consistency in the most crucial months of July and August… Upcoming wedding season starting from November will also play a deciding role.”

Monsoon delivers about 70 per cent of India’s annual rainfall, spurring farm output and boosting spending on items ranging from gold to tractors and refrigerators.

Courtesy: NDTV/ Image: DNA India

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