Gold Prices To Glitter Ahead, May Hit Rs 62,000 Per 10 Gram By November-End; Here's Why

Gold prices rose on Saturday with 22-karat yellow metal nearing Rs 55,000 per 10 grams, and 24-karat gold shying away from Rs 60,000 per 10 grams in India. Meanwhile, international gold prices are currently in the range of $1,920 to $1,930 an ounce ahead of the FOMC meeting. This week, gold prices were on a rollercoaster ride amidst major economic data and strengthening in the dollar and crude oil prices, which led the bullion to even struggle at a 3-weeks low. However, this is not expected to stop gold from shining in the quarter from September to November which is packed with back-to-back festivals where demand for yellow metal is higher. Hence, by November 2023-end, COMEX gold prices are expected to touch a whopping $2,090 per ounce, while MCX gold prices to skyrocket Rs 62,000 per 10 grams.

On Saturday, 22-karat gold stood at Rs 54,900 and 24-karat gold was at Rs 59,890 per 10 grams, rising by Rs 200 and Rs 220 respectively from their previous day's levels.

Furthermore, MCX gold futures expiring in October crossed the Rs 59,000 mark by touching an intraday high of Rs 59,148 per 10 grams on September 15, before settling at Rs 58,999 per 10 grams. In the international market, spot gold finished at the $1,923 an ounce level.

As per the latest report for the three-months period of September to November 2023 by Kotak Securities, a resilient US economy (raising inflation risks and prospects of higher rates) coupled signs of slowdown in Europe and China (aiding the dollar) prompted a weakness in gold prices at the start of September.

Kotak's note explained that asset managers have been trimming long positions in COMEX gold futures, while raising shorts since mid-July and the net long positions notched a five-month low of 25,695 lots in late-August.

At the same time, it added that the net long position of dollar have also been rising. Signs of resilience in the US economy and concerns of another wave of inflation amid rising energy costs prompted investors to bet that higher rates are going to stay here for longer, which is typically bearish for the non-yielding yellow metal. The dollar has strengthened this summer against previous expectations of a decline amid the turning point in the tightening cycle. Stronger greenback and higher yields raise the opportunity cost for holding gold.

However, Kotak's research note pointed out that despite e significant rally in the dollar index and US treasury yields over the past couple of months, gold prices are merely 7% down from the all-time highs.

It added, "Continued appetite for gold points to lingering worries about geopolitical tensions and macroeconomic uncertainties, Chinese property sector crisis and prospects of spillovers into the global economy. Stock replenishing and arrival of peak wedding season might aid jewelry demand from India and China during H2 2023."

Nevertheless, uneven monsoons and higher gold prices also pose some headwinds for the discretionary spending on jewelry. As per Kotak, Central bank purchases might more than offset ETF outflows.

Expecting a pause in rate hikes from the US Fed, Kotak said this will them to adopt a "wait and watch" approach and at the same time, give them the liberty to hike rates in November/December FOMC meetings, if inflation fails to cool down. Saving the final bullet might also help the central bank to reinstate the hawkish rhetoric and keep the inflation expectations well anchored.

Also, the brokerage's note added, Fed officials might probably increase the 2023 GDP growth projections amid the backdrop of robust economic activity lately. Fed funds rate might be projected at 5.6% for 2023, citing one more hike and no rate cuts.

Further, looking forward, Kotak's note said, "Signs that US economy is heading for a soft landing are bolstering the bets that Fed will keep rates higher for longer. "Higher for longer" fed funds theme will start dominating and a string of positive US economic data is undermining the case for monetary easing. Treasury yields may remain elevated in the near term and it might take a series of weak economic data from US for a dollar retreat."

Lastly, it concluded, "Lack of forward guidance and data-dependent approach by the Fed might add to the volatility and moves vulnerable to the economic data. Medium-term headwinds remain, however, the yellow metal is a good choice for a long-term perspective, as the Fed is near a turning point and it's only a matter of time before the economic activity starts deteriorating."

Hence, Kotak's note for the quarter said, "We expect COMEX Gold prices to trade in the range of $1,790-$2,090/troy ounce and MCX Gold prices to trade in a range of Rs.57,000-Rs.62,000/per 10 gram."