Despite the yellow metal’s slide over the past two weeks, gold’s rally this year has so far been nothing short of spectacular. Gold futures on the MCX have soared nearly 13 per cent, or Rs 8,000 per 10 grams, since the start of the year. The gains were mainly due to geopolitical tensions increasing gold’s safe-haven appeal as well as hopes of an early rate cut that sparked a move in the first half of April. The price increase since the beginning of the month still stands at 6%.
However, the situation reversed with a moderate rise in US inflation in March and dashed hopes of a rate cut by June.
“Gold posted its first weekly decline in six weeks and its biggest decline in two years, as expectations of a Fed rate cut faded after the latest U.S. economic figures, which left policymakers Fed in a catch-22 situation. First-quarter US GDP data sparked fears of stagflation as “Growth slowed, coming in at a weaker-than-expected 1.6% from 3.4%, while Price index measurements accelerated with core PCE prices for the first quarter jumping to 3.7% from 2.0%, above forecasts of 3.4%”, Jigar Pandit, head of commodities and currencies business, said Sharekhan of BNP Paribas.
It can be said that gold prices have peaked in the short term and we expect a further correction towards the levels of Rs 69,000 to 69,500 in the short term and perhaps some consolidation as well, Pranav Mer , Vice President, EBG – Commodity & Currency Research. at JM Financial Services, he believes. Although he concedes that the underlying trend remains positive until prices hold above technical support at 68,000. Analyst Anuj Gupta echoed a similar sentiment saying he sees further corrections in gold prices over the coming month amid consolidation in the yellow metal. While the head of commodities and currencies at HDFC Securities sees it as “merely a temporary correction after a prolonged period of gains”, the underlying fundamentals and current chart structure remain strong, he says. Before the start of 2024, several analysts had set the target at Rs 68,500-69,000.
If April has been a month of positive returns over the past 5 years, 2024 has been exceptional. The five-year average for April is 2%.
In April 2021, gold returned 4.70%, followed by a record return of 3.82% in April 2020. The world was grappling with Covid-19 during these two years and the The attraction for gold has therefore increased considerably. In 2019, 2022 and 2023, the returns were 0.7%, 0.33% and 0.87%, respectively.
“The seasonality chart of the last five years shows that April and May saw positive gold returns of around 1.80%. Nevertheless, it seems that this year is exceptional, but May is likely to be the consolidation phase for gold,” said Gupta of HDFC Securities. .
Gold Price Outlook
Gold’s average May returns over the past five years stand at 1.62% with peak returns of 4.46% and 3.89% in 2023 and 2022, respectively. In 2023 and 2019, gold’s May returns were 1.08% and 0.41%, while they were negative 1.74% in 2022.
Pandit of BNP Paribas maintains a long-term target of $2,700 for 2024 in the international market and 76,000 on the MCX by the end of the year.
Gold’s CAGR over the last five years is 13% and its long-term outlook remains strong despite the rise, Gupta said, estimating a target of Rs 75,000 for this year. Central bank demand, retail demand from China, geopolitical risk premia and the likelihood of global policy change from central banks will keep prices higher, he added.
JM Financial’s Mer sees the price reaching the Rs 74,000-74,500 mark by the end of the year.
May Strategy
Prices are expected to consolidate in May, all three said in unison. Mer sees the trading range between Rs 69,500 and Rs 72,500 and the recommended short-range strategy, with a stop loss above Rs 72,500.
Investors should view corrections as investment opportunities, Gupta suggested while advising swing traders to wait for further corrections before entering long positions.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
