By Dr. Renisha Chainani, Head- Research, Augmont – Gold for all
Gold prices have fallen around 9% in the last two months from the record high price of $2085 to $1900. The basic reason for the fall is the hawkish outlook of the US FED and various central banks of the world, which downplayed the role of gold as a safe-haven asset.
Inflation is slowing overall, but it is still too high for the FED to withstand. The FED closely monitors both headline and core PCE to determine how to proceed with interest rates. The Consumer Price Index, a different broad indicator of inflation, expanded by 4% in the year to May, which was the slowest rate of growth in more than two years. The FED permits an annual inflation rate of just 2%. Since the end of the coronavirus outbreak in March 2022, the central bank has increased interest rates to approximately 5%, reaching a peak of 5.25% to get inflation back to the desired level.
The economy appeared to be more resilient than anticipated in the gross domestic product data released on Thursday before the PCE data, which may have contributed to the FED’s decision to raise interest rates. In the first three months of this year, annualised GDP growth in the United States was 2%. FED officials are concerned that increasing labour costs and price growth in important economic sectors like housing could keep inflation high for a few more years.
The gold market is resilient, as evidenced by the prices remaining above $1900. Regarding the geopolitical risks and robust central bank demand as factors containing the selloff in gold, the case for holding gold is still strong. For those who were waiting for buying on dips, I think it’s a strategic time to buy gold around $1900 (~ Rs 58000) for the long term.
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