Volatile Gold Market: Driving Forces Behind Gold Rates At The Present Market

Gold rates, like other commodities, depend on multiple factors in the international picture, including interest rates, inflation rate, currency indexes, and importantly, global political scenarios. Talking about the current situation in the international markets, gold rates are highly volatile, and the two most significant reasons behind this are high inflation and global geopolitical tensions.

Price changes

In India, gold prices have sharply jumped from Rs. 45,800/10 grams to Rs. 48,200/10 grams in the past one month (from February 10 to March 10). Yesterday, on March 9, the rates reached Rs. 49,800/10 grams, its highest level in more than a year. Even in the Comex futures gold prices are being quoted highest in around 1.5 years. This year, from $1700/oz in January to Comex gold prices are being quoted at around $2000/oz now. However, international gold prices are now expected to drop.

Driving forces behind gold rates

The Russian invasion in Ukraine and continuous shelling, nuclear tensions triggered the commodity markets to boom. However, recently, Ukrainian President Volodymyr Zelensky commented that he will 'cool down' about his country's desire to join NATO. It has been two weeks since Russia started invading Ukraine. Now, Moscow can think about stopping the war in Ukraine, as joining NATO has been one of the biggest reasons behind Russia-Ukraine tension in the recent period. If the situation becomes calm geopolitically, and the war stops, gold rates and crude oil prices can fall.

After Zelenskiy comments on the said matter, gold rates and crude oil prices have already started to fall globally. According to reports, the West Texas Intermediate crude dropped 10% to $110, and Brent crude dropped 11% at $114. On the other hand, Comex gold futures are now being quoted at Rs. 1990.30.

Significantly, the USA inflation rate is now standing at a 40 years high range, and as a hedge against inflation, gold prices are bullish. But, if the US Federal Reserve hikes the interest rate to keep the inflation rate under control, then the government bond yield will rise, similarly, gold prices will fall. It will impact the domestic Indian markets accordingly.

What analyst thinks

However, about the volatility of gold rates, OANDA senior market analyst Edward Moya yesterday told Kitco News, gold "will likely pivot around the $2,000 level. If US stocks continue to defend the lows made during the initial shock that happened at the beginning of the conflict, then gold can continue to edge lower. Gold may form a trading range between the $1,965 and $2,050 levels."