Gold prices likely to stay muted for the rest of 2023 at least

• Gold prices have experienced a significant decline in the past month, largely due to the notable increase in US real yields.
  
• The foreseen trajectory for gold prices encompasses a range of $1,900/oz to $2,000/oz within the initial half of 2024.
  
• In the past month, Indian gold prices declined by approximately 1.2%.
  

Gold prices have experienced a further decline of around four percent in the past month. This correction can be attributed to a significant increase of approximately 50 basis points observed in the US 10-year real yield, according to the Gold Research Report by ICICI Bank Global Markets.

Gold traders have also kept an eye on the US Federal Reserve rate action. A Kotak Securities report says, “COMEX (Commodity Exchange Inc) gold prices plunged for the third consecutive week, as robust US economic data and slightly hawkish Federal Open Market Committee (FOMC) meeting minutes reinforced speculation that monetary policymakers may not be done raising interest rates yet.”

From ‘hard-landing’ scenario to soft-landing outlook

According to the ICICI Bank Global Markets report, the upward movement of US nominal and real yields reflects a shift from anticipating a 'hard-landing' scenario for the US economy to a more optimistic 'soft-landing' outlook.

“The safe haven metal has been continuously falling over the week, as upbeat economic data improved the conviction that US might avoid a hard landing and thus rates might stay higher for longer,” says Ravindra V Rao, VP-head commodity research, Kotak Securities.

This change is driven by the resilience of US domestic demand, leading to a positive adjustment in growth forecasts for 2023. Additionally, market response has been influenced by indications from the FOMC that it might consider a 25 basis points rate hike at the November policy meeting, with an intention to maintain higher rates for an extended period. This decision is influenced by tight labour markets and Consumer Price Index (CPI) inflation levels that remain above the targeted 2%.

However, rao says that gold prices have steadied ahead of this week’s Jackson Hole symposium in Wyoming and Federal Reserve Chair Jerome Powell will deliver a talk on the economic outlook on 25th August.

Gold price outlook

Over the remaining course of 2023, a bearish trading environment is anticipated for gold prices, given the unlikely prospect of substantial declines in both US real and nominal yields. Analysts at ICICI Bank Global Markets have revised the projection for gold prices subsequently downward, indicating a trading range spanning from $1850/oz to $1950/oz, with a potential downside of $1800/oz throughout 2023.

As the transition to 2024 approaches, the potential for an emerging uptrend in gold prices becomes contingent on the expectation that the delayed impact of US monetary tightening will induce a weakening effect on US growth.

Such a scenario may result in a neutral stance from the FOMC regarding the outlook for monetary policy. Not excluding the possibility, the FOMC could initiate a rate-cutting cycle from Q2 2024, potentially leading to decreased US yields and an increased appetite for gold.

Consequently, the foreseen trajectory for gold prices encompasses a range of $1900/oz to $2000/oz within the initial half of 2024. Additionally, an upswing in interest from central bank gold acquisitions might contribute to driving prices upward in the medium-term.

Indian gold view

In the past month, local gold prices declined by approximately 1.2%, aligning with global market movements; however, a strengthening USD/INR exchange rate moderated the extent of the drop. Importantly, gold imports surged notably, reaching 89 tonnes in July 2023 compared to 63 tonnes in June 2023.

This increase translated to a higher import value of $5.0 billion in July 2023 compared to $3.7 billion in June 2023. This upward trend in imports mirrors robust domestic demand. Anticipated import patterns suggest a steady trend from August to September, followed by an increase in October and November due to the festive season.