A fall in interest rates makes stocks and bonds more attractive than gold.
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After logging its best eight-day performance in five months, physical buyers of gold might get to see a Rs 400-800 per 10 gm dip in the metal price this week with a risk-on appetite returning on hopes of a rate cut by the US Fed in June or July and US President Donald Trump indefinitely delaying tariffs on Mexican imports. However, analysts add that any dips are likely to be bought into.
Gold on commodity exchange MCX rallied by almost 4 percent to Rs 32,936 per 10 gm (ex GST) in the past eight sessions through June 7, it’s best such performance since the last week of December. The rise in gold on MCX reflected the rally on US exchange Comex, from which the metal on the domestic bourse takes cues. The rally was on concerns of potential trade wars between the US and its trading partners China and Mexico and floundering economic growth.
Now, with US president Trump had signaled that tariffs on Mexico had been delayed indefinitely and with chances of a rate cut by the Federal Reserve over the next few months, gold could face some pressure in the near term.
A fall in interest rates makes stocks and bonds more attractive than gold. However, over a longer term, lower interest rates raise inflationary expectations, which in turn, could raise the demand for the metal which acts as a safe haven and a hedge against rising inflation.
Also, analysts said the momentum of gold would continue as the trade spat with China was far from over.
Nitin Kedia, business head of Kedia Commodity, has advised his clients to sell MCX near-month contract at Rs 32,900-32,950 for a target of Rs 32,100-32,150 in the current week.
A Rs 800 dip on a kilo gold contract works out to a fall of Rs 80,000. Kedia advises trading with a compulsory stop loss of Rs 33,250. Gnanasekar Thiagarajan, director of precious metals research firm Commtrendz, said any dip in gold would be bought into.