Gold prices fluctuate as geopolitical tensions ease; US Fed meeting, payroll data to affect prices this week

Gold prices dropped by 2% last week, in what has been the first weekly drop in prices in six weeks. This week, after a marginal drop on Monday, the prices declined sharply again on Tuesday by Rs 555 to Rs 71,047 per 10 grams in futures trade that matures on June 5 as speculators reduced their positions.

Weak global cues

While a steady market marked three straight months of an upward trend, the drop since last week has mainly been attributed to weak global cues. As the drop revives enthusiasm among investors waiting to invest more in the yellow metal, the markets are cautiously awaiting the U.S. Federal Reserve policy decision before making further moves.

“Gold futures witnessed the first weekly decline in six and plunged more than 2% during the previous week, as investors gauged ease in geopolitical tensions, mixed economic data from the US and hawkish comments from Fed officials ahead of the FOMC policy meeting this week. The US economy grew much less than expected in Q1 but inflationary pressures remained elevated,” explains Kaynat Chainwala, Senior Manager-Commodity Research at Kotak Securities.

A report from Motilal Oswal Financial Services highlighted a sharp slowdown in U.S. GDP growth to 1.6% annually in the last quarter amid high-interest rates. The steady U.S. personal consumption expenditures (PCE) price index suggests a potential delay in Fed rate cuts at least until September. In contrast, China witnessed a nearly 6% surge in gold consumption in the first quarter.

Domestic outlook

Last week, physical gold dealers in India charged premiums for the first time in almost two months, attracting buyers with lower domestic prices. Domestically, gold is anticipated to trade within the range of Rs. 71-72k amid cautious market sentiments driven by evolving economic indicators.

Indian gold consumption in the Jan-March quarter rose 8% to 136.6 tons, as investment demand jumped 19% and jewellery demand rose 4% in the quarter, the World Gold Council (WGC) said. But recent rallies in its prices could cut its total consumption in 2024 to the lowest in four years. Potential for higher returns due to soaring prices is boosting investment demand on one hand while suppressing consumption for use in jewellery on the other, say analysts.

Historically, gold is considered a safe-haven asset that retains or appreciates its value during turbulent times. The gold price forecasts for this year remain high amid simmering geopolitical woes as investors flock to the safe-haven asset and spur record-beating prices further as central banks bolster their reserves.

Non-farm payroll data to play a role

On Monday a weaker dollar, U.S. gold futures remained steady at around $2,350 levels. The dollar decreased by 0.3% compared to other currencies, which increased the attractiveness of gold for holders of different currencies. Apart from the fed policy meeting, non-farm payroll data is also due later this week and could hold major implications for the interest rate trend later this year.

"Gold market participants are essentially waiting for this Friday's non-farm payrolls report. Markets are well priced for the notion that the Fed should be in no rush to cut rates, given signs of sticky inflation and resilient growth," Daniel Ghali, commodity strategist at TD Securities, said.

The Federal Reserve's two-day policy meeting will begin on April 30. Market analysts have been attributing the recent correction in gold prices to the Federal Reserve's delay in interest rate cuts, which bolstered the dollar index and U.S. treasury yields. According to the CME FedWatch tool, it is anticipated that the Federal Reserve will maintain its benchmark interest rate at a range of 5.25% to 5.5% by the conclusion of the meeting on Wednesday.

(With inputs from agencies)