Gold prices have suffered a severe blow in the domestic market, sliding almost ₹13,000 off their record high as investors anticipate the result of the policy meeting by the US Federal Reserve that is due to be conducted on Wednesday. The adjustment is in the face of worldwide doubt concerning the movement of interest rates, development of inflation, as well as the path of the strengthening of the US dollar.
Gold futures have been trading below 71,000 per 10 grams on the Multi-Commodity Exchange (MCX), a price that is very low when compared to the all-time high of approximately 84,000 in the first half of this year. This pullback has raised a big question for both investors and traders: whether it is time to buy gold or prices will continue to fall because the Fed is likely to be more hawkish?
Why Are Gold Prices Falling?
Analysts explain the recent decline by a stronger US dollar, solid Treasury yields and a reduction in geopolitical tensions. The non-yielding assets, such as gold, lose some of their gloss as anticipations increase that the Federal Reserve can maintain interest rates at higher rates longer.
Spot gold prices are dropping below $2,300 per ounce in the international market, which is reflective of the cautiousness of the global investors. Moreover, the latest statistics in the US showed that the economy was sturdy and inflationary sticky – both factors, which are in favour of a higher-for-longer rate regime.
Home Effect and Investment Attitude
The rupee has been relatively stable, and weaker physical demand in recent weeks has increased the correction in India. The safe-haven effect of gold, according to market experts, is currently quietened down because risk appetite is rising in equities and cryptocurrencies.
Nevertheless, jewellers are optimistic about the demand during the festivals and purchases during weddings, which will provide a bit of support to costs in the short term.
The fundamental of gold is not impaired in the long-term perspective. This correction can provide a good point of entry for systematic investors, said a senior bullion analyst at a Mumbai-based brokerage.
Federal Reserve Meet to Expect
The Federal Reserve policy decision now rests in all eyes, and it may determine whether or not gold is on its next big move. When the Fed indicates to the market that it is going to reduce its interest rates in the next few months, or announces commentaries about inflation that are dovish, gold could gain a sudden recovery. Conversely, any indication of a long-term tightening may expand the bearishness movement.
Comments made about the Fed by chair Jerome Powell will also be monitored by traders who will give inputs on when the rates can be cut, and this information is important when looking at the short-term direction of the yellow metal.
Should You Buy Gold Now?
Experts remain divided. It is recommended that short-term traders remain wary until the announcement of the Fed, as volatility can explode. Gradual accumulation on dips can, however, be considered by long-term investors.
An analyst at Kotak Securities said that gold is a buffer in inflation, devaluation of currencies, as well as geopolitical risks. The long-term investors can initiate the process of positioning by doing it in stages.
Although the short-term outlook of gold depends on the policy position of the Fed, the drop has presented opportunities to long-term investors. The trick is always in the timing – and, possibly, it is also important to watch what the Fed is saying this Wednesday.
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