It’s a big week for gold

Gold was going gaga over the ongoing uncertainties globally. There were a host of reasons combined that led to this spike

Gold, the safest haven amid the ongoing uncertainty, also emerged as one of the most lucrative investment options in the financial year 2022-23 with an impressive return of 16.1 percent in rupee terms, and 2.3 percent returns in dollars.

For quite some time we have seen gold rates playing to the moves of either inflation numbers from the US or the Ukraine-Russia war. However, there have been a lot of influential factors that have been responsible for the rally in gold prices lately and will continue to do so.

Effect on Gold Rates Due to the Banking Crisis- The banking crisis, triggered largely by continuous hikes in the US rates, has led to bleeding bond portfolios and only large banks can survive these losses, the rest could belly up. It has definitely played a key role in the gold prices rally and shall continue to do so as many analysts believe that this is just the beginning of a banking crisis.

This scenario will keep the safe-haven appeal for gold rates

Inflation and gold rate hike – A lot hinges on whether inflation in the US stays above four percent and the Federal Reserve effectively gives up its target of bringing inflation down to two percent.

This could happen if there is intense political pressure on the Fed or if the US economy enters recession or suffers a banking crisis.

If the Fed starts cutting the gold rates while inflation is still high, gold may see an accelerated move higher.

Geopolitical – Apart from the ongoing Russia- Ukraine war there are other countries following suit which will definitely benefit gold. If China attacks Taiwan and if the US decides to defend Taiwan, gold prices could shoot up.

On the other hand, if Washington does not defend Taiwan, expect a quick move up and a quick retracement in the price of gold.

Physical demand – The key thing right now is that Russia and China appear to be accumulating reserves in diversification away from US dollars. That China’s appetite for gold remains insatiable as the latest data from the People’s Bank of China bought 18 tonnes of gold last month.

China’s gold shopping spree hit its fifth consecutive month

According to many analysts, China’s dominating presence in the precious metal market is completely changing the investment landscape, creating solid value for investors.

Analysts note that China is expected to continue to increase its official gold reserves as it builds international credibility for the yuan. China continues to make important strides as it competes with the U.S. dollar as a world reserve currency. Any kind of physical demand will set gold prices rolling up.

However, on the domestic front, the recovery of gold prices will not rise comparatively for Indian investors as the movement of the dollar-rupee rate is expected to be a key determinant and is likely to limit the gains.

Meanwhile, the volatility will continue if the new US jobs report this week confirms there will be worries ahead for the economy.

It’s a big week ahead for Gold!

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