Gold Price Outlook: 24K/10 Grams Yellow Metal To Touch Rs 78,000 Thanks To Fed Rate Cut, Festive Season?

Gold prices in India are likely to shine ahead on the backdrop of the festive season and the US Fed's latest aggressive rate cut of 50 bps, which will list the demand for the yellow metal. Expert believes that despite slight hiccups in demand for a brief period, overall gold demand will be upbeat throughout the festive season of 2024. Also, the Fed's cut comes as an opportune time to reinstate yellow metal as an investment haven. Gold could touch as high as Rs 78,000 in the coming months.

Gold prices in India are at a new all-time high with 24K/10 grams to Rs 75,120. While 22K and 18K prices are at Rs 68,860 and Rs 56,340 levels.

In light of the progress on inflation and the balance of risks, the Fed decided to lower the target range for the federal funds rate by 1/2 percentage point to 4-3/4 to 5 per cent. Further, the Fed has also hinted at two more rate cuts, favouring a 25 bps cut each in 2024. Also, the Fed is expecting a 100 bps cut in 2025, followed by another 50 bps cut in 2026.

On the rate cut, Anindya Banerjee, SVP: Head of Research: Currency, Commodity & Interest Rates, Kotak Securities said, "The US Federal Reserve has lowered rates by 50 basis points, a move that was largely anticipated. This marks only the third time in history that the Fed has initiated a rate-cutting cycle with a 50 bps reduction, the previous instances being in 2001 and 2007. However, unlike those past events, this cut comes at a time when the economy is still performing well."

Banaerjee added, "The Fed has provided guidance suggesting that rates could drop by 200 basis points over the next two years. However, market expectations diverge, with traders anticipating rates to climb to between 3% and 5% by December 2025. Such differences in rate forecasts are typical at the beginning of a rate-cutting cycle."

Colin Shah, MD, Kama Jewelry said, the higher-than-expected 50bps rate was cut by the US Fed after four years of strict maintenance of elevated rates to tame inflation. This rate cut comes at an opportune time and is also an influence of the slight dip in unemployment in the US. The gold price immediately recorded a record-high spike, as a reflection of the announcement.

Shah added, this scenario must be taken positively as the rate cut has opened doors for gold to scale new highs shortly, reinstating the might of the yellow metal as an investment haven.

However, although the rate cut makes gold attractive, Unmesh Kulkarni, Managing Director Senior Advisor, Julius Baer India said, it is not enough to push gold prices higher.

Kulkarni said, " The focus of the gold market has fully shifted away from Chinese investment demand and central bank buying to the outlook for interest rate cuts in the West. In the near term, we remain constructive on Gold. Expectations of lower interest rates are propping up sentiment in the futures market and luring safe-haven seekers back into the physical market. However, history suggests that lower interest rates alone are not sufficient to push gold prices higher."

According to Kulkarni, a recessionary environment during the rate cuts is generally positive for Gold; however, rate cuts without a recession are generally not positive for Gold.

But Kama Jewelry MD believes that domestically, the price cut comes right at the onset of the gold-buying season in India and will reflect positively on the buying trend.

As per Kama, driven by the affinity and sentimental value of the yellow metal among the Indian population will continue to dominate buying this season and the rate cut will have less impact on the same.

Furthermore, Kama said, "While we may witness some slowdown in demand for a brief period due to the shradh. Nonetheless, we are certain that the demand will remain upbeat for the remainder of the festive period Overall, we look forward to a strong festive season with a 10-15% rise in demand as compared to last year and the gold price to scale USD 2650 at the global level and INR 78,000 domestically."

Moreover, Banerjee added, "We anticipate that both gold and silver will benefit from this easing of monetary policy, aside from short-term volatility, as the US dollar weakens and the yield curve steepens. Gold prices could range between $2,530 and $2,630 per ounce, while silver may trade within a band of $30 to $32 per ounce."