Gold glitters on cues from global markets, US Fed comments

Taking cues from global markets, gold prices continued to rally in the domestic market on hopes of sooner than later US Fed rate cuts following comments from the US Federal Reserve Chair Jerome Powell, besides higher purchase of gold by central banks in January.

In January, the Reserve Bank of India joined other central banks to add nearly 9 tonnes of gold to its forex reserves. This is the first monthly increase in its gold reserves since last October and the largest since July 2022. RBI holds 812 tonnes of gold as reserves, according to the World Gold Council report.

In January, central banks across the world added 39 tonnes to global gold reserves. This is more than double the net purchases of 17 tonnes in December, and the eighth consecutive month of net purchases. Turkey and China again led the charge among buyers, while significant sales were virtually non-existent, it said.

Gold tends to rise when the US interest rates are low, which reduces the opportunity cost of holding non-yielding bullion. The yellow metal was up ₹462 per 10 grams to  ₹64,955 after opening strong at  ₹65,049 on Thursday, according to the Indian Bullion and Jewellers Association data.

Gold has rallied by  ₹2,938 per 10 grams from  ₹62,017 on February 19. In the derivatives market, gold for April delivery on MCX was up by  ₹252 to  ₹65,430 per 10 grams, while June contract was traded  ₹248 higher at  ₹65,888.

In COMEX, spot gold prices were at $2,156 per troy ounce and inched closer to their all-time high levels of December 2023.

US Fed holds the key

Suvankar Sen, Managing Director, Senco Gold and Diamonds, said a financial crisis is brewing in the US with many smaller banks facing the heat. This apart, he said gold prices were driven by the expectations that the US Fed will reduced with the inflation showing signs of stabilisation at the lower end.

Tapan Patel, Fund Manager (commodities), Tata Asset Management, said despite higher interest rates in the US, gold prices have been rallying in the past year due to heightened geo-political risks and macro-economic challenges. Investors should look for optimum asset diversification and may look forward to having some exposure in gold on supportive market environment, he said.

Jateen Trivedi, VP Research Analyst, LKP Securities, said the market focus will now shift to the upcoming US CPI data, which is poised to be a key trigger for gold prices next week while Non-Farm Payroll and Unemployment data will likely provide further direction for gold trends.