Escalation in Middle East crisis could fuel international gold prices to USD 2,500

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Escalation in Middle East crisis could fuel international gold prices to USD 2,500
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Even as international gold prices fell relatively on Monday with relative ease in geopolitical tensions in the Middle East, the prices of the safe haven yellow metal are seen rallying towards USD 2,500 in case of further escalation in the war situation.
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At the time of filing this report, gold June futures contracts were 1.4 per cent or USD 35 lower at USD 2,378.70 per ounce, after a five-week rally.

According to a Bloomberg report, gold remains almost 15 per cent higher so far this year, with gains supported by central bank buying and demand from Asia.

Ajay Kedia, a Mumbai-based expert and head of Kedia Advisory, said fundamentals in the gold are not working at present. He said the geopolitical conflicts in the Middle East is leading to the strengthening of the Dollar index, which is typically negative for gold.

Further, he said the gold market is now in an overbought zone. Any de-escalation in the Middle East crisis is key for gold, he said, as he advised investors to avoid taking positions in the market. In case of further escalation, he sees gold at USD 2500 and with de-escalation USD at 2,320.

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Historically, gold, as an asset, is considered to be haven as it typically manages to retain or appreciate its underlying value in times of turbulence.

Gold finished March at USD 2,214 per ounce, 8.1 per cent higher month-over-month, driven by higher risk and positive momentum.

The move in the gold price year-to-date has also been likely aided by growing geopolitical risk, continued central bank demand and resilient gold consumer buying, said the World Gold Council recently.

"Looking forward we find that, while gold is trading at all-time highs, investment demand - especially that linked to gold ETFs - remains low and given the right conditions could provide additional support," the gold council said in a report.

Particularly for India, a key market, it said Indian elections will likely stall local demand in April.

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"India, the world's largest democracy, goes to the polls in April. The market will see little activity during the six-week election period. To boot, a diminished wedding season on the other side suggests that, all else equal, we should not expect to see any pent-up demand from Indian consumers in June," it argued.

Gold consumption tends to be impacted during the election season as typically there is heightened scrutiny on the movement of cash, gold, and jewellery.

Anecdotal evidence suggests that the various industry stakeholders (bullion dealers, manufacturers, and jewellers) limit their transactions during this time, the World Gold Council said.

Gold is at an all-time high and is getting attention, but the council believes assets at such levels are challenging for investors who think they may have missed the boat.

"However, our analysis suggests that gold is currently well supported by fundamentals, and the low participation from US investors in particular augurs well for the rally to continue, in contrast to what we saw in 2011," it added.

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