Informist Poll

Economic uncertainties to keep gold volatile in May

Informist, Friday, May 5, 2023

By Sandeep Sinha

MUMBAI – Gold prices are likely to be volatile this month, as a continued impasse over the debt ceiling in the US, concerns about the health of US regional banks, and fear of a global recession pose uncertainties for the market.

In April, the yellow metal delivered 1.5% on-month returns on COMEX and 0.9% on the Multi Commodity Exchange, after rising over 7% in March, as the appetite for riskier assets improved.

In April, The Yellow Metal Delivered 1.5% On-month Returns On COMEX And 0.9% On The Multi Commodity Exchange

With inflation staying above the comfort levels of major central banks, they have not yet hinted at interest rate cuts later in the year, and this may continue to exert pressure on gold prices.

The US Federal Open Market Committee increased key interest rates by 25 basis points to 5.00-5.25% on Wednesday and the European Central Bank hiked its rate by the same quantum a day later, which lowers the appeal of non-yielding assets such as gold.

"Gold is expected to trade in a wide range this month as myriad of factors are at play currently," said Praveen Singh, associate vice-president, fundamental currencies and commodities at Sharekhan by BNP Paribas.

"The dominant factors include the US Federal Reserve's monetary policy stance (whether a pause or data-based decision for June and upcoming meetings), stances of European Central Bank and Bank of England, banking concerns as the US regional banks come under pressure, status of the US economy as the economy is giving mostly mixed signals and possible risk aversion in the market."

Saumil Gandhi, senior analyst – commodities at HDFC Securities, said, "We expect short- to medium-term gold price to remain an attractive investment option among investors and gold prices continue to be influenced by various macro forces ranging from inflation data, lingering banking crisis, recession fear, dollar weakness, and falling Treasury yields."

On the MCX, gold futures are seen at 58,787.60-61,600.93 rupees per 10 gm this month, according to the average of the estimates of 15 brokerage firms polled by Informist. On the COMEX, prices are seen at $1,946.50-$2,052.28 an ounce. On Thursday, gold prices hit fresh lifetime highs, both on MCX and COMEX.

At 1315 IST, the most-active June gold contract on the MCX was at 61,340 rupees per 10 gm and the same-month contract on the COMEX was at $2,048.30 an ounce.

Gains in the dollar index may also exert pressure on gold prices. The index, which has fallen 11.6% from the two-decade high of 114.74 touched on Sep 28, may see some technical rebound from lower levels.

"Looking ahead, the dollar index is likely to continue finding resistance around 102.70-103.10 zone and break below 100.80 would extend the decline towards lower support at 99.60-99.40 band. Meanwhile, higher (trendline) resistance is seen around 104.30-104.50 zone," Motilal Oswal Financial Services said in a research note.

Weakening demand in top consumers China and India due to record high prices, and a slowdown in central bank purchases, with Russian and Turkish central banks selling their reserves, also exerted pressure on prices.

The prospect of the El Nino weather phenomenon during the second half of monsoon season this year threatens agricultural income and, consequently, demand in rural India, which accounts for 60% of gold and silver demand in the country.

In Jan-Mar, India's gold imports fell 29% on year to 112 tn and local prices are trading at a discount of $14 per ounce to the landed cost, Metal Focus said in its latest report

Globally, demand for gold fell 13% on year to 1,081 tn in the March quarter due to weak demand from India, a fall in global electronic sales, and outflows from exchange-traded funds, the World Gold Council said in its Gold Demand Trends report today. Demand for gold in India slipped 17% on year to 112.5 tn in Jan-Mar, as record high domestic prices hit demand for jewellery, the report said.

According to CME FedWatch tool, markets are pricing in a 93% chance of a pause in rates by the US Fed in its June meeting. Data on US non-farm payrolls, consumer price index, and core personal consumption expenditure will be tracked for clarity on the monetary policy stance of the Federal Reserve. Investors will also await the Bank of England's decision on interest rates, and data on Eurozone GDP and CPI inflation, which will lend direction to gold prices.

"While the market awaits data or developments that support or alter the current rate trajectory, the short-term path for gold is likely to remain choppy, especially if inflation concerns return to challenge the mentioned rate cut expectations," Ole Hansen, head of commodity strategy at Saxo Bank, said in a research note.

Following is a summary of the poll by Informist on gold prices in May and details of estimates by respondents, in alphabetical order:

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