Gold prices have touched a low of $1,660 per ounce (about Rs 48,500/gm) internationally and around Rs 49,000 per 10 gram domestically on prolonged monetary tightening from the US Federal Reserve due to higher inflation.
“It’s hard to build a case for anyone taking a long position in gold ahead of the Federal Reserve’s interest rate decision on Friday since the market isn’t even sure if policymakers will raise rates by 75 basis points or 100 basis points. Investors who are seeking a flight to safety are still looking to the US dollar rather than gold,” says Ketan Kothari, director of Augmont Gold For
All, an integrated gold firm with operations from refining to retailing.
He added “A hawkish hike would be another nail in the gold coffin and will likely send prices down to the $1,600–$1,650 range.”
Relation Of Gold Prices To US Treasury Yield
According to experts, as both gold and treasuries are considered safe-haven assets, there is a positive correlation between gold and bond prices and a negative correlation between gold prices and bond yields.
"Bond yields are inversely proportional to bond prices. The higher the yield, the lower the price, and vice versa. Because gold and treasuries are both regarded as safe-haven investments, there is a positive link between gold and bond prices and a negative correlation between gold and bond yields," says Kothari.
He says that because there are opportunity costs associated with storing gold, which bears no interest, capital flows from gold to bonds are witnessed when rates get sufficiently high, and it flows in the opposite direction when bond yields become too low. Gold continues to be downbeat from a stronger dollar driven by rising US bond yields as markets continue to price in peak inflation and hawkish Fed stance.
Should You Buy Gold Now?
The World Bank warned last week that the world might be on the verge of a worldwide recession as central banks hike interest rates to combat persistent inflation. The world's three major economies, the US, China, and the Eurozone, have all been slowing quickly, and even a modest hit to the global economy over the next year may throw it into recession.
The global economy is experiencing its worst decline following a post-recession recovery since 1970, and consumer confidence has already fallen more strongly than in the run-up to prior global recessions.
"I think gold is in its last leg of bearishness this week due to recession fears and as it is in an oversold zone. People should start to accumulate gold next week for the long-term as the prices stabilize after the important event of the Fed meeting is over, and moreover, the auspicious period of Navratri will begin," says Kothari.
