Gold plays a unique and vital role in the world eco system. According to the World Gold Council, the annual volume of gold production has tripled every year since the early 1970s. There are several common factors that drive the gold market globally including Demand and Supply, Central bank policies and World Economic data. Gold is used in multiple human aspects like Jewelry, Technology, Investment assets etc.
Gold is having multiyear bull rally and the price of gold has risen from around $43 per ounce in 1972, to a price of over $2000 in year 2020. In recent times, Gold prices fell sharply in both International and Indian markets. On MCX, gold futures made a high of Rs. 56,124 per 10 grams and are currently trading at Rs. 45,000 per 10 grams.
Reasons behind the fall in Gold Prices
There are multiple reasons behind the fall in Gold prices. The rise in dollar index is one of the major reasons accounting for this fall. The newly formed Biden government in US is providing large stimulus measures which are further slumping the gold price.
Apart from these, the US Treasury yields and the recent climb in equities toward the all-time closing high, has further weighed down gold prices. Hedge fund and many investors have exited their positions in Gold to chase crypto currency which is having a marvelous run in recent times.
The midterm trend is down according to the daily chart. A trade below 44200 will confirm the downtrend again towards 42600, however it will change the main trend once if it sustainably crosses 46400 levels. The major support is a long-term retracement zone at 41800 to 42200 levels as from this levels rally started.
Forecast for FY2022
For FY2022, the movement of Gold price will be based on the environment of increasing bond yield, a weak dollar, rising inflation expectations, and ongoing monetary and fiscal stimulus. President-elect Joe Biden approved the massive stimulus package of $1.9 trillion, This stimulus is directly provided in the hand of the US people which will definitely increase the spending of the people.
As current interest rates are low people will diversify this money into other assets class which will be positive for gold. However, in recent months, after the announcement of stimulus, bond yield prices are increasing rapidly. It must be noted that there is a negative correlation between Gold and Bond Yield.
The US dollar is trading firmly against the currencies of the world. Gold is universally priced in U.S. dollars and both of them are inversely correlated. Thus, a strong U.S. dollar will also be negative for gold prices. In the current scenario, Gold is trading with a negative bias. However, any rise in Inflation or public spending will be a support for Gold.
ConclusionGold is a potential investment and investors are keen to buy Gold at attractive prices. Gold prices are currently trading near 44600 support levels and at this price investors may see great value. As a result, we have seen multiple buying tied near this level. However, for mid to long term, Gold price will be dependent on various factors like Global Inflation, US dollar value, Jewelry demands and production and World events. These events often have a great impact on the price of gold because gold is viewed, as a source of safety amid the economic or geopolitical tumult. Investor should buy 50% of portion of gold near this price and wait for the level of 43000 for buying more. Gold is expected to trade in the range of $1550 to $2075 on COMEX and 43500 – 52700 on the MCX for FY 22. Price will remain bullish as per the overall outlook of the year.
Happy Investing!
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