Gold prices are hovering around record-high levels, both in the domestic and international markets, thanks to the growing bets that the US central bank may deliver the first-rate cut as early as June.

A low-interest rate in the economy tends to boost the gold price as the opportunity cost of buying the non-interest-yielding bullion then reduces, thus increasing the appeal of the yellow metal.

On Wednesday, April 3, 2024, gold futures maturing on June 5, 2024, hit a lifetime high of Rs 69,478 per 10 gram while futures maturing on April 5, 2024, too, hit a record high of Rs 69,699 on MCX. 

On the global front, too, the price of yellow metal extended a record run. Spot gold was up 0.2 per cent at $2,283.76 per ounce, as of 0602 GMT, and hit a record high of $2,288.09 earlier in the session. Bullion has hit record highs consecutively since Thursday, as per a Reuters report. 

Data shows that gold prices in India stood at Rs 66,900 as of the close of FY24 as compared to Rs 59,612 at the end of FY23, up 12.23 per cent.

So, what is favouring gold’s stellar performance?

As per analysts, the following are the reasons for the rally:

High expectation of rate cut: Gold prices edged higher as investors got fresh clues about when the Federal Reserve will start easing its monetary policy. Fed policymakers indicated they still expect to reduce interest rates by 75 basis points by the end of 2024, despite recent high inflation readings. 1 basis point (bps) is one hundredth of a percentage point. 

Central bank buying: Many countries’ central banks are buying gold as a protective measure. China’s central bank added gold to its reserves for the sixteenth straight month.

Falling rupee against dollar: The Indian rupee has been losing value against the US dollar. The domestic currency recently reached its lowest point ever which makes gold more expensive in the domestic market.

Geo-political tension: The world remains in the grip of geopolitical tension's aftermath, navigating its ongoing consequences.

Central elections lined up in major countries: Throughout the financial year, over 15 major countries are slated to hold their central elections, contributing to heightened volatility in commodity markets during this period.

“A sustained record rally in domestic gold prices crippled the typical busy wedding season demand in India, with dealers forced to offer heavy discounts this week while scrap supplies piled higher. In India, dealers hiked discounts to the highest since March 2023, at $40 an ounce over official domestic prices from last week's $38 discounts,” said Rahul Kalantri, VP of Commodities at Mehta Equities

Gold price outlook and investment strategy

“All in all, the US economic data continues to reaffirm bets on an imminent shift in US monetary policy stance. While the transition to lower interest rates bodes well for gold, much of it seems to have already been priced in. This could limit the upside for the precious metal going forward,” noted Chirag Mehta, CIO, and Ghazal Jain, Fund Manager, Alternative Investments, Quantum AMC.

Nonetheless, if the Fed doesn’t meet the market’s expectations as regards the quantum and timing of rate cuts, given that inflation continues to be sticky above its target, gold could see some consolidation, the experts added.

Downsides, however, will be limited by the fundamental backdrop of interest rates, lingering geopolitical conflicts in Russia-Ukraine and the Middle East, and strong central bank gold buying.

Meanwhile, Kalantri holds an overall bullish view on gold for the long term, with a target of $2410, but for the short term, the expert is cautious and suggests booking profit around the $2280 level.

In the domestic market, "we expect the gold price to go to Rs 69500–Rs 70,000 due to rupee weakness, but short-term investors and traders should book profit around this level," Kalantri added.