Gold is on record-breaking spree; check out key reasons behind the surge

Gold since February has given impressive returns to the tune of 17 per cent. The prices of the yellow metal, both in the domestic and international markets, have been hitting record highs every single day, even as the US Treasury yield is also on the rise.

On Tuesday, too, gold futures on the MCX continued to rally and topped levels of Rs 71,150 per 10 gm today (April 9, 2024), while in the international market, the price of the precious metal hit a record high on Monday for a seventh straight session and was hovering around the same levels today.

Here are the factors propelling gold to new highs, as per experts:

Hopes of interest rate cut by Federal Reserve:

Hopes pinned on a 75-bps point rate reduction by the US Federal Reserve are one of the top factors lifting the gold price higher and higher and leading it to uncharted territories. Amid lower rates in the economy, the inclination towards other securities yielding lower returns fades, hence increasing the appeal of the precious yellow metal.

“Gold is up more than 17% since mid-February, a move that has left some onlookers puzzled because of the lack of any obvious trigger, especially given traders’ conviction on three quarter-point rate cuts, which is fast fading, with markets now favouring just two reductions,” said Neha Qureshi, Senior Technical and derivatives Research Analyst, Anand Rathi Commodities & Currencies.

Central bank aggressive piling of the yellow metal:

As per a Reuters report, China's central bank added 1,60,000 troy ounces of gold to its reserves in March. Turkey, India, Kazakhstan, and some eastern European countries have also been buying gold this year. 

Anuj Gupta, Head of Commodity and Currency at HDFC Securities, noted that central bank buying and rate-cut expectations are the two major reasons pushing gold to a new peak.

Uncertain geopolitical tensions:

Qureshi said gold’s scorching run to an all-time high can be explained from a distance, given the fractious geopolitical climate and murky outlook for the global economy. In times of geo-political rift, gold’s appeal as a safe haven gets a boost.

The outlook in the medium term suggests that gold still has some upside potential, while in the near term, its trajectory will be decided by the minutes of the Fed meeting that will offer cues on the Fed's interest rate going forward. 

“Elevated price levels might face a risk of profit booking given climbing 10-year US Treasury yields. This, combined with the headline US CPI expected to show sticky numbers tomorrow for March given elevated oil prices, is a near-term headwind for further gains in gold,” said Qureshi.

On a near-term basis, Spot Gold (CMP $2344 per ounce) is anticipated to find immediate technical resistance in the range of $2,360–$2,370, a weekly close above which only bullish momentum might continue for the coming weeks, Quershi added.