By Dr. Renisha Chainani, Head- Research, Augmont – Gold for all
The gold price has reached a new high above $2200 (~Rs 66000) due to the rising probability of Federal Reserve rate cuts in June and uncertain global growth prospects. The rally has been very sharp and like “Hand over Fist” which means “quickly or rapidly”. According to the CME FedWatch Tool, markets expect the Fed to slash the policy rate in June by about 80%, while the odds of a 25 basis point rate cut in May are approximately 25%.
The expectations for a rate-cut decision at the June meeting were reiterated, despite Fed Chair Jerome Powell’s reiteration that rate decreases are only acceptable if they are persuaded that inflation will return to the 2% target on a sustained basis. Powell did not provide a particular timeline for rate drops but did say that it would most likely be appropriate to begin easing policy restrictions at some point this year.
Meanwhile, pessimism about the global growth rate has also boosted the appeal of gold. Jerome Powell cautioned in his remarks that the economic outlook is unclear. A few economic indicators suggest that the US economy is losing pace. The Institute of Supply Management PMIs revealed a drop in growth in February. Moreover, US Nonfarm payrolls released yesterday, increased by 275,000 in February. This number exceeded the market’s expectation of 200,000.
Across the globe, the outlook for the UK and Eurozone economies is uncertain. The former experienced a technical recession in the second half of 2023, whereas the latter stayed stagnant. On the Asian front, the Chinese economy has pledged to reform its growth model and set an ambitious 5% growth target for 2024. However, economists have expressed concerns about the likelihood of meeting this aim due to weak retail domestic demand, disinflation, and the real estate crisis.
The situation is very different this time, as the Equity market, the Crypto Market and the Gold Market are all at record-high prices, so one needs to be cautious. As gold prices have run up too fast in the last week, we could see a bit of correction and retracement up to $2155 (~Rs 65000) and $2125 (Rs 64400). Investors should book profits and look around to buy again on the correction. While Traders can create short positions for the mentioned targets. Overall long-term view is still bullish, we can expect prices to touch $2300 (~ Rs 69000) by this year end.
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